Israel announced today that it had given the green light for 20 more homes in a Jewish development in the disputed area of Jerusalem.
The announcement came after one of the frostiest meetings between a US president and an Israeli leader.
Binyamin Netanyahu, the Israeli Prime Minister, had flown to Washington for an emergency meeting with Barack Obama after a trip to the Middle East by Joe Biden, the Vice President, was wrecked by an Israeli plan to build 1,600 new Jewish homes in east Jerusalem.
East Jerusalem was captured by Israel in 1967 and is claimed by both sides in the conflict.
Related LinksIsrael threatens to block peace talks for yearRows between friends will leave Israel exposedClinton: US will be a critical friend to IsraelThere was no photo opportunity or traditional joint statement of solidarity after the 90-minute closed session. Neither side would comment on the talks, but it was expected that Mr Netanyahu would agree to a secret freeze on building in the area, despite his public pledges that Jerusalem would never be given up.
However, the announcement of the new apartments in a development funded by Irving Moskowitz, an American billionaire, in a predominantly Arab area set tempers flaring again and may undermine what little progress was made in Washington at soothing the diplomatic crisis.
Israel is digging itself into a hole that it will have to climb out of if it is serious about peace, Saeb Erekat, the chief Palestinian negotiator, said.
There is overwhelming international consensus on the illegality of Israels settlements, including in east Jerusalem, and the damage they are doing to the two-state solution.
The Palestinians have said they will not join even the indirect peace talks the US is trying to stitch together unless all Israeli construction east of the armistice line from the 1949 Arab-Israeli war is halted.
During his trip to Washington, Mr Netanyahu went to great lengths to explain that his office had no oversight of the many construction projects already under way, serving an Israeli population of about half a million in the occupied West Bank and east Jerusalem.
A spokesman for the city council said that the project was approved last July, and today"s announcement was a procedural step. He dismissed the media attention as an attempt to create a provocation" during the Prime Minister"s visit to the US.
A Tel Aviv research centre said this week that since 1967, $17.4 billion (12 billion) had been spent on Jewish settlements in the West Bank excluding east Jerusalem.
The money has paid for 32,711 apartments, 22,997 houses and 5,534 caravans, 321 sports facilities, 271 synagogues and 96 ritual baths.
There was scepticism even in the Prime Ministers own coalition at his argument that he could not oversee new construction across the so-called Green Line.
Is this another "unfortunate" mistake? Is this another "misunderstanding"? asked Eitan Cabel, a Labour MP.
Labour sits in an uneasy alliance with Mr Netanyahus Likud and other right-wing and ultra-Orthodox parties.
Netanyahu decided to spit into Obama"s eye, this time from up close. He and his pyromaniac ministers insist on setting the Middle East ablaze, Mr Cabel said.
Part of the problem is the terminology of the conflict, according to Meron Benvenisti, a former deputy to Jerusalems legendary mayor Teddy Kollek in the 1970s.
Large Israeli settlements, such as Maale Aduumim and Pisgat Zeev, have been built on the eastern edges of Jerusalem and their residents do not even think of themselves as settlers.
Israeli officials are now confused about the US Administrations sudden decision to lump them in with settlements in the West Bank itself, which are regarded as illegal by the international community.
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