Rupert Cornwell: There's no sign that Obama will punish his ally

The fracas over Israel's announcement of 1,600 new homes in disputed East Jerusalem is undoubtedly serious. But it also recalls the old children's ditty of how "sticks and stones may break my bones, but words will never hurt me".

The words have flown fast and furious in Washington since Israel, by accident or design, delivered this blow to the "peace process" with the Palestinians that the US is working so hard to revive – at the very moment vice-President Joe Biden was visiting the country. But there is no sign that the Obama administration, however genuine its anger, is about to take specific action to punish its ally. For that reason if no other, the talk of the worst crisis in relations between Washington and Jerusalem since Henry Kissinger demanded a partial withdrawal of Israeli forces from Sinai in 1975 seems exaggerated.

In 1991, a comparable row over settlements expansion led the White House of George HW Bush to withhold housing loans guarantees to Israel. Two months ago, George Mitchell, the US envoy, hinted that similar action could be taken now. But nothing, at least so far, has happened.

With his initial demand that the Israelis impose a total freeze on settlements, Barack Obama forgot the maxim of the great Labour foreign secretary Ernest Bevin that "the first thing to decide before you walk into any negotiation is what to do if the other chap says no". Israel said "no," and the Obama administration backed down. Prime Minister Benjamin Netanyahu may well be calculating that he can call the administration's bluff again – for the simple reason that no US President dare ignore domestic political realities, least of all in an election year.

AIPAC, the powerful pro-Israel lobbying organisation, has said that the US statements were a matter of "serious concern," and that Washington should "take immediate steps to defuse the tension," – in other words that Mr Obama should back down again.

In what could be read as a warning as well as a statement of the obvious, it noted that the Jewish state enjoyed "vast bipartisan support in Congress and among the American people". Indeed, some even claim that the elder Bush's no-nonsense treatment of Israel contributed to his defeat by Bill Clinton in 1992.