Europe and the United States condemned Israeli plans, announced Tuesday, for another 1,100 homes in an east Jerusalem settlement, a move Palestinian leaders said snubbed a recent offer of talks.
They responded sharply to the Israeli interior ministry's announcement that it had approved plans for the new housing units in Gilo, subject to a 60-day period for public objections.
It was just one stage of a lengthy, multi-year approvals process for the planned expansion of the Gilo neighbourhood, which lies in Jerusalem's south.
But the Palestinian leadership said the move effectively rebuffed a recent proposal from the Middle East Quartet for fresh peace talks.
"With this, Israel is responding to the Quartet's statement with 1,100 'Nos,'" Palestinian negotiator Saeb Erakat told AFP, shortly after the approval was made public.
Richard Miron, spokesman for UN Middle East peace envoy Robert Serry, took a similar view.
"Today's decision... ignores the Quartet’s appeal of last Friday to the parties to refrain from provocative actions," he said in a statement.
"This sends the wrong signal at this sensitive time," he added.
"Settlement activity is contrary to the roadmap and to international law, and undermines the prospect of resuming negotiations and reaching a two state solution to the conflict."
On Friday, the Quartet -- the United Nations, the European Union, the United States and Russia -- called on Israel and the Palestinians to resume talks within a month, with the goal of reaching a deal within a year.
They made the proposal shortly after the Palestinians formally submitted their bid for full state membership of the United Nations, over the objections of Israel and the United States.
"The administration and the United States government is deeply disappointed by that announcement," President Barack Obama's spokesman Jay Carney told reporters aboard Air Force One on a trip to California and Colorado.
He called on both sides to take steps to improve prospects of direct talks.
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State Department spokeswoman Victoria Nuland described the Israeli settlement move as "counterproductive".
She added: "We have long urged both parties to avoid actions which could undermine trust."
European Union diplomacy chief Catherine Ashton also condemned the development.
"Last Friday, the Quartet called on the Israelis and Palestinians to refrain from provocative actions if negotiations are to resume and be effective," she said in a statement.
"I therefore deplore today's decision... I call on the Israeli authorities to reverse this plan."
But Yair Gabbay, a member of the interior ministry committee who also serves as a Jerusalem councillor, said the move was a step towards protecting the area from "foreign ownership."
"According to the Basic Law, which is equivalent to a constitution, this area is within the sovereign territory of the State of Israel, and we are fulfilling our duty in making sure it will remain that way, and not be subject to any foreign ownership," he told AFP.
"Jerusalem is not for sale," he added. "It has been, and will always be, the capital of the Jewish people."
Gabbay also said the committee had approved hundreds of housing units in east Jerusalem for Palestinians during the same meeting.
The Quartet's call did not contain any explicit request for Israel to halt settlement building before peace talks resume, despite Palestinian insistence they would not negotiate without a settlement freeze.
Peace talks between the two sides have been on hold since late September 2010, when they ground to a halt shortly after they began, with the expiry of a partial Israel moratorium on settlement building in the West Bank.
Israel declined to renew the freeze, and the Palestinians say they will not hold talks while Israel builds on land they want for their future state, a position repeated by Abbas upon his return from the United Nations on Sunday.
In comments published on Tuesday in the Jerusalem Post, Israeli Prime Minister Benjamin Netanyahu suggested he would not approve a new freeze.
He accused the Palestinians of using settlement construction as a "pretext" to avoid direct talks.
Israel considers Jerusalem to be its "eternal, indivisible" capital and does not view construction in the east to be settlement activity.
The Palestinians, however, believe east Jerusalem should be the capital of their future state and are fiercely opposed to the extension of Israeli control over the sector.