United States Vice-President Joe Biden has condemned the Israeli government's decision to allow construction of more housing in east Jerusalem.
Israel announced its plans at the start of a trip by Mr Biden designed to get the peace process moving again.
In a strongly worded statement, Mr Biden said Israel's move was the kind of step that undermined the trust needed in the region.
In Washington, a spokesperson for President Barack Obama also voiced concern.
Israel approved the building of 1600 homes in east Jerusalem, angering Palestinians.
Building on occupied land is illegal under international law, but Israel regards east Jerusalem as its territory. The international community considers east Jerusalem, annexed by Israel in 1967, to be occupied territory.
A Palestinian Authority spokesman described the decision as dangerous and said it would hinder negotiations with Israel.
Palestinian leaders have only recently agreed to resume indirect talks with Israel, at the urging of Mr Biden, who is the most senior member of the Obama administration to visit Israel.
Under US pressure, Israel has announced a 10-month suspension of building work in the occupied West Bank. The suspension excludes east Jerusalem, where the Palestinians want their capital.
Despite the suspension, Israel on Monday authorised the building of more than 100 homes in a Jewish settlement in the West Bank.
A statement from the Defence Ministry says the building was needed to plug a potentially dangerous 10-metre gap between two existing buildings.
