Israeli-US relations remain tense despite two meetings between prime minister Benjamin Netanyahu and President Obama in Washington.
The head to heads away from the cameras were their first since the row over plans for new Jewish homes in east Jerusalem.
Earlier the PM told congressional leaders that Palestinian demands for a freeze on construction were “illogical and unreasonable”.
The meetings came as an anti-settlement watchdog revealed new Israeli plans: to partly demolish an old Jerusalem hotel and build new apartments.
The authorities deny the move is provocative.
“What happened yesterday was entirely procedural, nothing to do with any decision making process,” said Jerusalem’s deputy mayor Hagit Ofran. “In fact one has the feeling that there is an irresponsible media out there, trying to sabotage the peace process – because the timing of the publicataion is too much to be a coincidence.”
The Jerusalem authorities say the final go-ahead was given a week ago, but Palestinians insist the blame for damage to the peace process lies firmly with the Israeli plan.
“The Israeli decision to build a settlement in the place of the Palestinian Shephered Hotel in east Jerusalem, exactly when prime minister Netanyahu was meeting Barack Obama. is clearly a calculated act meant to undermine any possibility for peace and negotiations between the Palestinians and Israelis,” said Palestinian lawmaker Mustafa Barghouti.
The Israeli stance with no sign of concessions over the building plans is uncomfortable for the Americans. The Palestinians want sanctions imposed on the Israeli government.