Despite worldwide condemnation, Prime Minister Benjamin Netanyahu has said Israel will continue with plans for settlement construction in Jerusalem.
It comes after reports that US Secretary of State Hilary Clinton demanded a project to build 1600 homes in East Jerusalem was cancelled.
Speaking in Parliament, and defying the United States, Netanyahu rejected placing any curbs on building homes.
“There has not been a government in Israel in the last 40 years that has limited building in Jerusalem. The construction of these neighbourhoods did not harms the Arabs of East Jerusalem in any way and did not come at their expense.”
In Cairo at the start of her first trip to the region, EU foreign policy chief Catherine Ashton said the talks focused on re-starting the Middle East peace process.
Egyptian Foreign Minister Aboul Gheit reportedly asked that EU-Israel relations are not upgraded for the time being as a result of the settlement issue.
Ashton is due in Israel later this week.