The United States on Wednesday sought goodwill gestures from Israel to persuade Palestinians to return to peace talks even as new settlement expansion plans threatened further strains between Washington and its close ally.

Prime Minister Benjamin Netanyahu, who held a low-key meeting at the White House on Tuesday with President Barack Obama, was engaged in an all-day effort to ease the dispute with Washington before he was to leave for Israel.

Palestinians have demanded a complete settlement freeze in the occupied West Bank and East Jerusalem. Netanyahu has cautioned that accepting their terms for reviving negotiations, in the format of U.S.-mediated, indirect talks, could put peace efforts on hold for another year.

“The president asked the prime minister to take steps to build confidence for proximity talks so that progress can be made toward comprehensive peace,” White House spokesman Robert Gibbs told reporters, without elaborating. “There are areas of agreement and there are areas of disagreement.”

As U.S. and Israeli officials continued negotiations apparently aimed at reaching a deal before Netanyahu was due to fly home, Obama’s Middle East envoy George Mitchell held talks with the prime minister at his hotel.

U.S. officials have tried to get Israel to agree to suspend further Jewish home construction in East Jerusalem and to consent to discuss core issues such as borders and the status of Jerusalem in the U.S.-sponsored “proximity” negotiations.

Undeterred by turbulence in U.S.-Israeli relations, Israel earlier on Wednesday confirmed plans for a further expansion of the Jewish presence in East Jerusalem, with more building approved.

Gibbs said U.S. officials were seeking clarification after a Jerusalem city official, in a move that angered Palestinians, said final approval was given to develop a flashpoint neighborhood from which Palestinians were evicted last year.

GETTING RELATIONS BACK ON TRACK

American and Israeli officials have sought to get relations back on track after a separate plan to build 1,600 homes for Jews in Ramat Shlomo, a settlement on West Bank land that Israel annexed to Jerusalem after a 1967 war, was announced two weeks ago during a visit by U.S. Vice President Joe Biden.

The housing dispute touched off the worst diplomatic rift between Washington and Israel since Obama took office last year.

Netanyahu, who heads a coalition that contains pro-settler parties, including his own, said he was blindsided by bureaucrats. But he also made clear he had no intention of curbing Jewish construction anywhere in a holy city Israel claims as its capital.

Palestinians, who want East Jerusalem as the capital of the state they hope to establish in the occupied West Bank and the Gaza Strip, have called Netanyahu and his settlement policy obstacles to peace.

In a sign of lingering tensions, the Obama administration withheld from Netanyahu some of the usual trappings of a White House visit on Tuesday. Press coverage of the Oval Office talks was barred, and the leaders made no public statements afterward.

As part of the housing project that made headlines on Wednesday, 20 units are due to be built at the site of a defunct hotel in the Sheikh Jarrah neighbourhood of East Jerusalem, an area where a U.S. millionaire has been buying property for settlers.

Nir Hefez, a spokesman for Netanyahu, said in a statement the decision to issue building permits was first made last year and that “Jews and Arabs can buy and sell freely private property and homes in all the city.”

(Additional reporting by Allyn Fisher-Ilan in Jerusalem, Souhail Karam in Riyadh and Patrick Worsnip at the United Nations; Editing by David Storey)
Matt Spetalnick and Jeffrey Heller