White House goes on the offensive against Netanyahu

Israel's announcement of new settlements was 'insulting' and 'calculated to undermine' peace talks with Palestinians

Israel's government was yesterday facing the worst chill in relations with the US since taking office after a top White House official said the announcement of plans to expand an East Jerusalem settlement seemed "calculated to undermine" the negotiating process.

Earlier Israeli Prime Minister Benjamin Netanyahu responded to a welter of local media reports about the new "crisis" in relations with Israel's closest ally by telling a weekly meeting of his Cabinet: "I suggest that we not get carried away – and that we calm down."

But David Axelrod, a senior adviser to President Barack Obama, said that the announcement during vice-president Joe Biden's visit last week of the plan to build 1,600 homes for religious Jews in Ramat Shlomo , was an "affront" and an "insult".

"We've just gotten... so-called proximity talks going between the Palestinians and the Israelis and this seemed calculated to undermine that," he told the ABC This Week talk show.

Following a reprimand from US Secretary of State, Hillary Clinton, on Friday night – where she called Israel's behaviour "insulting" – Mr Netanyahu said he had appointed a committee of senior civil servants to investigate how the announcement came to be made when it did. "There was a regrettable incident, that was done in all innocence and was hurtful, and which certainly should not have occurred," he said.

But with no indication that his government actually intended to abandon the plan, Mr Netanyhau added: "It is of utmost importance to understand that the State of Israel and the US have common interests and we will act according to the vital interests of the State of Israel." That still appeared to leave a significant gap between the two governments because of Washington's dismay – made explicitly clear by Mrs Clinton in a, by all accounts, robustly-worded telephone call – at the substance as well the timing of the announcement.

The international community has never accepted Israel's unilateral annexation of Arab East Jerusalem after the Six Day War. But Israeli officials said yesterday that Mr Netanyahu was acting no differently from his predecessors, Labour and Kadima, as well as his own party Likud, in treating the whole of Jerusalem as sovereign Israeli territory.

Likud chief whip Ze'ev Elkin yesterday urged the prime minister to maintain his policy of East Jerusalem construction.

Israeli officials also denied reports – in both The New York Times and The Washington Post – that last week's announcement violated an informal understanding that if the US got talks going there would be no announcements of settlement building in East Jerusalem that might trigger a walkout by the Palestinians. Palestinian President Mahmoud Abbas reportedly demanded abandonment of the Ramat Shlomo plan as a condition of pursuing the indirect talks with Israel. Urging the talks to go ahead, however, vice-president Biden indicated before leaving Israel that Mr Netanyahu's promise that the Ramat Shlomo plan would take "several years" to enact allowed time for the problem to be solved in talks between the two sides.

But Mr Axelrod yesterday hinted that the US was still seeking assurances from Israel as well as to persuade Mr Abbas to resume talks. "Israel is a strong and special ally," he said. "The bonds run deep. But that is just the very reason this was not the way to behave... I think the Israelis understand clearly why we're upset and what, you know, we want moving forward."

Two meetings of the Interior Ministry's Jerusalem District planning committee – the body that approved the Ramat Shlomo plan – were cancelled for this week though a ministry spokesman said this was because of the temporary absence of an official.

He refused to confirm that the committee had agreed not to discuss construction beyond the 1967 border for the time being, though Mr Netanyhau did ask the Jerusalem mayor two weeks ago to delay implementation of a highly controversial development and demolition plan in the East Jerusalem district of Silwan.

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