When Israel announced new housing units for Jews in East Jerusalem at the start of a visit this month by Vice President Joseph R. Biden Jr., Prime Minister Benjamin Netanyahu apologized for the timing and expressed regret at the embarrassment. Mr. Biden accepted his explanation, and the two sides seemed prepared to move on.

Since then, though, that event has remained lodged at the center of American-Israeli relations. How it got there, and why it remains, sheds light on the growing divide between the Obama administration and the Netanyahu government. The current discord, ostensibly over Jerusalem housing, is really over the role of the Israeli-Palestinian conflict as well as over differing perceptions of the Palestinians’ capacity for self-rule.

While Mr. Biden seemed satisfied with the Israeli explanation, others were clearly not. Among them was Amr Moussa, the secretary general of the Arab League. A week earlier, he reluctantly announced his organization’s approval of indirect peace talks between Israel and the Palestinians. Mahmoud Abbas, the Palestinian president, had requested the support, feeling unable to renew talks without pan-Arab cover. Arab foreign ministers in Cairo offered a tepid go-ahead despite their skepticism about Israel’s intentions.

After the plans for more Jerusalem housing were announced, however, Mr. Moussa called Mr. Abbas to say the talks should not proceed. Mr. Abbas called Washington to describe his predicament, which produced a phone call from Secretary of State Hillary Rodham Clinton to Mr. Netanyahu, demanding steps to keep the indirect talks alive. The sequence of calls was described by an American advocate for Israel and confirmed by a senior Palestinian leader.

On Sunday, in his first public comment on the issue, Mr. Netanyahu told his cabinet officials that any divide with the United States could be managed.

“Even if there are disagreements,” he said, “these are disagreements between friends, and that’s how they will stay.”

But two main issues are keeping American-Israeli tensions on the front burner: disagreement on the effects of what happens in Jerusalem on the rest of the Middle East, and the strength of the Palestinian leadership.

The Obama administration considers establishing a Palestinian state central to other regional goals; it also believes that the Palestinians, led by Mr. Abbas and Prime Minister Salam Fayyad, are ready to run a country. The Netanyahu government disagrees on both counts. It thinks the issue of Palestinian statehood has little effect on broader American concerns and is also dubious about the ability of the Palestinians to create an entity that can resist a radical takeover.

The centrality of the dispute over Jerusalem is the clearer of the disagreements.

Last fall, Gen. James L. Jones, the national security adviser, told a liberal American Jewish group that solving the Israeli-Palestinian conflict was central to easing international tensions.

The Netanyahu government and its supporters reject this argument.

“To me, this puts into question the administration’s sense of reality,” said Sallai Meridor, who was Israel’s ambassador to Washington toward the end of the administration of George W. Bush. “To think that what happens here has a major impact on the state of affairs in Afghanistan, Pakistan and Iraq is, in my view, quite far from accurate.”

Other top American security officials agree that solving the Israeli-Palestinian conflict is a strategic American concern and that the dispute is a cause of regional instability affecting Washington’s interests.

Gen. David H. Petraeus, head of United States Central Command, made this point recently in testimony before the Senate Armed Services Committee, adding that a perception of an American tilt toward Israel made it harder for the United States. Defense Secretary Robert M. Gates broadly endorsed his point.

Lt. Gen. Keith W. Dayton, who heads an effort to train Palestinian security forces in the West Bank, likes to tell a story about his work in Iraq after Saddam Hussein was deposed in 2003.

He was leading a team sent to find illegal weapons but discovered something else in the barracks of the Republican Guard: On many walls he saw drawings of Al Aksa Mosque in Jerusalem. Strangling its dome was a serpent with the word “Israel” on it.

General Dayton said he was amazed to see such fervor for the issue so many hundreds of miles away. He realized then, he said, the significance of the Israeli-Arab dispute beyond its borders.

Since arriving here, he has championed Palestinian security skills. Where Israeli generals say the forces are doing fine work but could not keep down violence without Israeli actions, General Dayton gives the Palestinians far more credit and wants the Israelis to cut back on their incursions.

This highlights the other significant disagreement between the two governments: the readiness and reliability of the Palestinian leadership of Mr. Abbas and Mr. Fayyad. Obama administration officials say they believe that the Palestinian leadership is the best in history, focused on nonviolence, institution building and prosperity. Israelis are skeptical.

Jonathan Spyer, a senior research fellow at the Interdisciplinary Center in Herzliya, argued the Netanyahu perspective in a recent opinion piece in the English version of the newspaper Haaretz. In it, he accused the Obama administration of living with illusions, because with Hamas rule in Gaza it is “past time to acknowledge that a single, united Palestinian national movement no longer exists.”

He added that throughout the Palestinian areas, “the anti-Western and antimodern element is flourishing, and has state backers in Iran and Syria.”

While many Israeli leaders take Mr. Fayyad more seriously than that, they still argue that the timetable the Obama administration posits to begin establishment of a state — two years — is illusory because Hamas remains a threat.

“One needs to see what has taken place here during the past 17 years,” Moshe Yaalon, a top government minister, said in an interview last week in an Israeli newspaper. “The belief of land for peace has failed. We got land in return for terror in Judea and Samaria and land in return for rockets in Gaza. What, the Americans don’t see this?”

Israelis are upset that Washington does not publicly criticize the Palestinian leadership for anti-Israel incitement in its media, and over the recent naming of a public square for a woman who took part in the hijacking of an Israeli bus in 1978 that led to the deaths of dozens.

It remains unclear how the Americans and Israelis will settle their dispute. But the longer the dispute goes on, the more isolated Israel becomes, because much of the world disagrees with it.

As Michael Young wrote in The Daily Star newspaper of Lebanon, “More countries than ever before see Israel as the problem.”

He added that the “hardening perception is that Israel’s irresponsible settlement expansion plan is destroying all prospects for a mutually satisfactory accord with the Palestinians, and that the ensuing instability will harm everyone.”