"(Prime Minister Benjamin) Netanyahu and US President Barack Obama have their wires crossed, and this is detrimental to US-Israel relations," Labor Party ministers told Ynet Sunday night.

According to the ministers, the prime minister has no direct channel of communication with the American president, and contact between the two is conducted mainly through Defense Minister Ehud Barak and the US special envoy to the Middle East George Mitchell.

This lack of communication, they added, is what led the Americans to toughen their stance on the issue of settlement construction and demand that Israel halt all development on a project in the east Jerusalem neighborhood of Sheikh Jarrah.

The ministers also criticized Netanyahu for choosing to go public with the story of the US pressure on Israel over the Sheppard Hotel project in Sheikh Jarrah.

"Netanyahu's explicit statement during the cabinet meeting regarding Israel's intention to continue building in Jerusalem could be construed by the Washington administration as an act of defiance that will deepen the tear," one of the ministers said.

"Israel needs to try to ease the tensions and find points of agreements between the two sides, including regarding the construction in Jerusalem. We shouldn't deepen the crisis vis-à-vis Washington… this damages the ties with the US and contributed nothing to Israel," he added.

The New York Times quoted Israeli officials Sunday as saying that the Netanyahu government had gone public with the issue "to try to pre-empt further American efforts to stop Jewish building in east Jerusalem."

US Defense secretary Robert Gates and Mitchell are scheduled to visit Israel next week. Jerusalem officials hope that the visit will help alleviate tensions with the US.

Meanwhile, US Secretary of State Hillary Clinton was the first American official to comment on the reports. During her visit to India, Clinton was asked on Sunday whether this dispute was what caused Mideast envoy George Mitchell to cancel his trip to Israel.

Clinton refused to comment on Mitchell's progress, but said negotiations were ongoing and vigorous. She added that once the US has something to announce, it would.

This is the second time within a week that Clinton refused to comment on the dispute with Israel, after previously having made a bold statement against any kind of settlement construction, even to accommodate what Israel has called natural growth.

The issue was raised in a meeting between Israeli Ambassador to the US Michael Oren and a State Department official. The official told Oren continued development in east Jerusalem may damage talks towards a two-state solution.

Oren consulted with Jerusalem and on Friday got back to his American colleagues with the official Israeli response.

In Sunday's cabinet meeting the prime minister pointed out that Arabs live in the western part of the capital, and said, "We cannot accept the idea that Jews have no right to live and buy apartments in any part of Jerusalem."