Israeli Prime Minister Benjamin Netanyahu voiced regret on Sunday for the announcement of a Jewish settlement plan that has strained ties with Washington and threatens the revival of Middle East peace talks.
In his first public remarks on what Israeli commentators called his most serious crisis with Washington since taking office a year ago, he gave no sign he would meet Palestinian demands to cancel a project for 1,600 new settler homes.
"I suggest not to get carried away and to calm down," Netanyahu told his cabinet, after a reprimand by U.S. Secretary of State Hillary Clinton and written statements issued by the prime minister's office that failed to end the dispute.
"There was a regrettable incident here, that occurred innocently," Netanyahu said, referring to an announcement by a government ministry during a visit last week by U.S. Vice President Joe Biden, of planned construction in an area of the West Bank that Israel has annexed to Jerusalem.
The timing of the disclosure, after Palestinians agreed to indirect peace talks, embarrassed Biden and raised questions over whether Israel's settlement policy could harm U.S.-Israeli security cooperation in the face of a future nuclear-armed Iran.
"It was hurtful and certainly it should not have happened," Netanyahu said of the announcement by the Interior Ministry, controlled by the religious Shas party, a member of a governing coalition dominated by pro-settler parties, including his own.
A senior U.S. official forecast "a dicey period here in the next couple days to a couple of weeks" as Palestinians demanded reversal of the settlement plan.
A U.S. envoy is due back in the region later in the week to try to get peace talks suspended since December 2008 under way.
The Europeans and the so-called Mideast Quartet joined in condemnation.
Catherine Ashton, foreign policy chief of the European Union, called on Netanyahu to show his leadership, saying that a peace deal was "necessary," the Jerusalem Post reported.
The Quartet, made up of Russia, the European Union, the U.S. and the United Nations, said in a statement that it "condemns" Israel’s decision to advance housing plans, the newspaper reported. The statement urged both Israel and the Palestinians to avoid making unilateral moves.
In unusually blunt remarks, Clinton had called Israel's behavior "insulting" after it approved the project while hosting Biden, who had focused during his visit on Washington's commitment to Israeli security and sanctions against Iran.
Although Clinton stressed Washington's ties with Israel were "durable and strong", she told Netanyahu in a telephone call on Friday he must act to repair the relationship.
Netanyahu said at the cabinet meeting he had appointed a team of senior officials to look into the process leading to the settlement project announcement and "to ensure procedures will be in place to prevent these kinds of incidents" in the future.
It was not immediately clear whether the inquiry would help smooth relations with Washington after the latest display of friction between Netanyahu and President Barack Obama.
"In flames," read the front-page headline in Maariv, a mass circulation, mainstream Israeli newspaper, underneath a cartoon depicting Obama boiling Netanyahu in a cooking pot.
Writing in the left-leaning Haaretz newspaper, commentator Aluf Benn said Netanyahu has reached "the moment of truth" and must choose between his ideological beliefs and political cooperation with the right and his need for U.S. support.
Netanyahu, he wrote, "knows that Israel has no other allies with which to face the threat posed by the Islamic Republic" — a reference to an Iranian nuclear program the West says is aimed a producing nuclear weapons, an allegation Iran denies.
In November, after resisting Obama's call for a total settlement freeze, Netanyahu announced a 10-month moratorium on new housing starts in West Bank settlements — exempting Jerusalem from the order. Washington praised the move.
Palestinians fear settlements on land Israel captured in the 1967 Middle East war will deny them a viable state in the West Bank and Gaza Strip, with East Jerusalem as its capital.
Israel considers all of Jerusalem its capital, a claim that is not recognized internationally.