US Secretary of State John Kerry has urged Palestinians "not to react adversely" to Israel's announcement of new settlement building, stressing the need to return to the negotiating table.
With a fresh peace dialogue in its early stages after a three-year hiatus, the approval of almost 1,200 housing units in annexed east Jerusalem and elsewhere in the West Bank on Sunday infuriated Palestinians.
The plan was swiftly followed by Israel announcing it would release 26 veteran Palestinian prisoners ahead of a resumption of peace talks Wednesday in Jerusalem.
As some Israeli ministers criticized the government's prisoner release, Palestinians denounced the settlement plan, which Washington and the European Union said Monday was illegal and detrimental to peace efforts.
The last peace talks in 2010 broke down on the issue of settlement building.
Kerry, on a trip to Colombia Monday, sought to neutralize the atmosphere in the Middle East, noting that the settlement plans were "to some degree expected," and calling for both sides to resolve their major issues.
"We have known that there was going to be a continuation of some building in certain places, and I think the Palestinians understand that," the chief US diplomat said in Bogota.
But he added: "I think one of the announcements or maybe one of them was outside of that level of expectation, and that's being discussed right now."
Kerry, who took the lead in securing last month's resumption of peace talks, said he did not expect the latest developments to become a "speed bump," but he reiterated that the United States regards all settlements as illegal.
"What this underscores, actually, is the importance of getting to the table... quickly, and resolving the questions with respect to settlements, which are best resolved by solving the problem of security and borders," Kerry told reporters.
"Once you have security and borders solved, you have resolved the question of settlements. And so I urge all the parties not to react adversely or to provoke adversely, whichever party may do one or the other in any way," he said.
"With the negotiation of major issues, these kinds of hot-point issues really become much easier to - in fact, they are eliminated as the kind of flashpoints that they may be viewed as today."
Kerry said he had put in a call to Israeli Prime Minister Benjamin Netanyahu, who underwent surgery at the weekend, and that he expected to speak to him very soon.
The 26 prisoners constitute the first batch of a total of 104 long-term Palestinian and Israeli Arab inmates to be freed in four stages, depending on progress in the talks.
Palestinian chief negotiator Saeb Erakat underlined the importance of the prisoner release for the renewed peace initiative to continue.
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"We hope to put into effect what we've agreed on... we hope for the release of 104 prisoners. Each will return to his house. This is what we've agreed on," he told Israeli Arabic-language radio.
"There is a clear understanding between us and the Americans and Israelis. Any change (in that) will mean the agreement is off the table."
The decision to free prisoners, however, has angered the families of those killed in assaults.
"This is a day of celebration for terror organizations," Meir Indor, head of Almagor, a group representing Israeli victims of Palestinian attacks, told AFP.
Most prisoners being freed were arrested for "murder," with five being "accomplices to murder" and one being guilty of "abduction and killing," Israel says.
All prisoners had been arrested before 1994 except one who was arrested in 2001.
Housing Minister Uri Ariel of the far-right Jewish Home party also reacted angrily to the impending releases.
"Terrorists belong in prison," Ariel said. "The terrorists who are being released murdered women and children, and it's not clear to me how releasing murderers can help peace."
Ariel's ministry had on Sunday announced tenders for the construction of 793 settlement housing units in annexed east Jerusalem and 394 elsewhere in the West Bank.
Media reports have implied that the construction announcement was meant to appease Netanyahu's far-right coalition partners, who oppose the release of prisoners but fervently promote settlement construction.
"I don't know of such a deal, but look -- both were announced on the same day," Indor said.
Palestinian officials slammed the settlement announcement as a move aimed at "preventing" peace talks.
"It is clear that the Israeli government is deliberately attempting to sabotage US and international efforts to resume negotiations by approving more settlement units three days before the... Palestinian-Israeli meeting," Palestinian negotiator Mohammed Shtayeh said.
Russia described the Israeli move as "a counterproductive step that complicates the atmosphere of the talks".
But a spokesman for Netanyahu insisted that the new settlement units were "in areas that will remain part of Israel in any possible future peace agreement."
"It changes nothing," Mark Regev added.