The US accused Israel on Wednesday of damaging the peace process when it approved the construction of four new buildings in a Palestinian area on east Jerusalem's Mount of Olives a day earlier.
"We have noted that these types of announcements and activity harm peace efforts," a US State Department official told The Jerusalem Post.
Still, the harsh response was more measured than several previous US criticisms of plans to build in east Jerusalem.
The official added, "We believe it is important to resume negotiations between the parties in order to resolve all permanent-status issues, including Jerusalem."
The US and Egypt are both making intensive efforts to restart peace negotiations between the Palestinians and Israel. As part of those efforts, US special envoy George Mitchell is expected to travel to the region soon.
Though Prime Minister Binyamin Netanyahu has curbed settlement construction in the West Bank, he has repeatedly said that Jerusalem is not covered by that policy. Still, the bulk of Israeli construction in east Jerusalem takes place in already established Jewish neighborhoods.
Washington sees moves like the Mount of Olives project as making it harder for Palestinian Authority President Mahmoud Abbas to come to the negotiating table, but has also wanted to encourage Israel for the government's willingness to sit with the Palestinians, as well as its decision to impose a 10-month moratorium on new settlement construction.
In the Knesset on Monday, Netanyahu said that in "recent weeks there has been a change of atmosphere. I hope that the time is now ripe to move the peace process forward."
But in Sharm e-Sheikh, during a meeting with Egyptian President Hosni Mubarak, Abbas said that he would speak with Israel only if it halted all Jewish construction in the West Bank, including in east Jerusalem.
The PA on Tuesday harshly condemned the decision by the Jerusalem Municipal Planning and Construction Committee to build four residential buildings for 24 families next to the Beit Orot Yeshiva on the Mount of Olives.
The PA believes that this in effect creates a new Jewish neighborhood.
On Monday, Defense Minister Ehud Barak asked UN Secretary General Ban Ki-moon to do his best to persuade Abbas to resume negotiations, during a telephone conversation between the two men.
Barak also spoke with the Quartet's envoy Tony Blair and asked him to help the Europeans work with the US and the Egyptians on this issue.
Senior PA negotiator Saeb Erekat condemned the decision to build on the Mount of Olives "in the strongest possible terms."
He said that if the Israelis wanted to resume peace talks, "they must announce a total cessation of settlement activities" in east Jerusalem and the West Bank.
A source in the Prime Minister's Office said that in Jerusalem, just "like in every Israeli city, the planning and zoning regulations are the prerogative of the municipal government, and it requires no involvement of the Prime Minister's Office."
Deputy Foreign Minister Danny Ayalon applauded the municipal panel's decision.
"Where Jerusalem is concerned, we have a rock-solid position that is common to many political parties and generations," he said in an interview with Army Radio. "Even if the US disagrees with us - we can agree to disagree."
Ayalon stressed that although the expansion of Jewish Jerusalem was a controversial issue in peace talks, this could be overcome.
"We hope that when we achieve peace with the Palestinians, these issues will be resolved in the process," he said.
Stephan Miller, spokesman for Jerusalem Mayor Nir Barkat, downplayed the significance of the Mount of Olives decision. He told The Jerusalem Post that residential zoning for this area was approved in 1990, so Monday's decision was "nothing new."
The approval of projects such as this, Miller said, was a normal move in the life of a growing city such as Jerusalem. He added that the land was privately owned.
Another municipal spokesmen added that this specific plan had received its first approvals in 2003, but that construction was only authorized now. The decision was a professional one that was made based on the technical merits of the project, he said.
Both spokesmen declined to clarify if the apartment units would house Palestinians or Jews. But Hagit Ofran of Peace Now said that the project was owned by Irving Moskowitz, an American Jew who has funded Jewish projects in the capital.
Peace Now plans to protest against the project on Tuesday.
Meretz chairman MK Haim Oron said he opposed the initiative, and that "running and leading a city as complex and charged as Jerusalem requires much more responsibility, discretion and restraint than Nir Barkat has showed over the last months."
The Meretz faction of the Jerusalem Municipality has appealed the Planning and Construction Committee's decision.
Earlier this week, the Ministerial Committee on Legislation delayed taking a vote on a bill that would establish a special authority to manage the Mount of Olives. The measure is sponsored by MKs Yoel Hasson (Kadima), Arye Eldad (National Union), Nissim Ze'ev (Shas) and Uri Maklev (United Torah Judaism), giving a wide base of support among coalition and opposition parties.
The ministerial committee decided to delay the vote by 60 days to coordinate plans within the coalition, but its sponsors said on Tuesday they are optimistic that it will be approved as a government bill.
"The Mount of Olives is the oldest Jewish cemetery in the world," the MKs wrote in their introduction to the proposed legislation. "It has been a national site for the Jewish people since the days of the First Temple and, in addition to serving as a preeminent historical site of great importance to the Jewish people, it is a holy site."
The authority would work to develop, restore and protect the Mount of Olives cemetery, and would coordinate among the many public and charitable bodies that perform services connected to the site.
Rebecca Anna Stoil and AP contributed to this report.
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