Israel has infuriated Palestinian leaders by announcing plans for hundreds of new settler homes in Jewish neighbourhoods of East Jerusalem.
The ABC reports that Israel's housing ministry has approved 238 new homes in neighbourhoods of East Jerusalem ending an unofficial building moratorium that has been in effect there for nearly a year.
The international community considers East Jerusalem as occupied land. Israel disputes that.
Palestinian leaders have reacted with fury, with chief negotiator Saeb Erekat saying Israel is bent on "killing" the peace process, which is already in danger of collapsing over the Jewish settlements in the West Bank.
One Palestinian negotiator has urged the US to hold Israel responsible for the collapse of negotiations.
One Israeli newspaper says prime minister Benjamin Netanyahu not only knew of the plan but coordinated it with Washington.
Some reports say Israel reduced the number of homes to temper American displeasure.