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JERUSALEM: Israeli Prime Minister Benjamin Netanyahu made it clear on Monday settlement building in east Jerusalem would continue, in a move likely to further heighten tensions with key ally the United States.
Western-backed Palestinian president Mahmud Abbas responded by saying he would not return to peace talks without a complete freeze of settlements.
The US State Department declined to comment on the Israeli premier's remarks, saying it was awaiting a "formal" Israeli response to its concerns.
"Construction will continue in Jerusalem as this has been the case over the past 42 years," he told members of his Likud party.
Israel occupied mainly Arab east Jerusalem in the 1967 Six Day War and later annexed it in a move not recognised by the international community.
The go-ahead last week for the construction of 1,600 new homes for Jewish settlers in east Jerusalem infuriated Washington, particularly since it coincided with a visit by US Vice President Joe Biden aimed at promoting renewed peace talks with the Palestinians.
Israel's ambassador to Washington said bilateral relations have hit a 35-year low.
"Israel's relations with the US are facing the most severe crisis since 1975," the Yediot Aharonot newspaper quoted ambassador Michael Oren, a prominent Middle East historian, as telling consuls in the United States during a telephone briefing over the weekend.
1975 saw US calls for a partial Israeli withdrawal from Egypt's Sinai peninsula, then under Israeli occupation, igniting a major crisis between the two allies.
Last week's announcement sparked fury among the Palestinians, who view east Jerusalem as their capital and see the growth of Israeli settlements as the main obstacle to the establishment of their promised state.
"There will not be any negotiations with the continuation of settlement activity," Abbas' spokesman Nabil Abu Rudeina told AFP on Monday.
"These policies do not create an appropriate atmosphere for the resumption of the peace process."
Senior US officials including Biden, US Secretary of State Hillary Clinton have slammed both the new construction and the timing of last week's announcement as insulting and destructive to peace efforts.
On Monday State Department spokesman Philip Crowley told reporters that Hillary Clinton had asked Netanyahu for a formal response to US demands.
"When she outlined what she thought appropriate actions would be to the prime minister, she asked for a response by the Israeli government. We wait for the response," Crowley said.
Also on Monday, EU foreign policy chief Catherine Ashton said Israel's move "endangered and undermined the tentative agreement to begin proximity talks."
"Settlements are illegal, constitute an obstacle to peace and threaten to make a two state-solution impossible," she said in Cairo where she addressed members of the Arab League.
Israel's March 9 announcement of the green light for the new construction in east Jerusalem's Ramat Shlomo came just two days after the Palestinians had reluctantly agreed to hold indirect negotiations with Israel.
Direct talks collapsed after Israel launched a devastating 22-day military offensive at in December 2008 against the Islamist Hamas-run Gaza Strip aimed at halting Palestinian rocket fire.
Israeli troops wounded 10 Palestinians on Monday as they opened fire on dozens of students hurling stones at a West Bank checkpoint to protest against Israel's actions in east Jerusalem, Palestinian medics and witnesses said.
As tensions mounted, Israel extended a lockdown of the West Bank and, for the fourth day running, barred men under the age of 50 and non-Muslims from entering the city's flashpoint Al-Aqsa mosque compound.
The compound is Islam's third holiest site after Mecca and Medina in Saudi Arabia. It is also Judaism's holiest site because it was the location of the Second Temple, destroyed by the Romans in 70 AD.
Police and Palestinian demonstrators have clashed in and around the compound on the last two Fridays, and police fear Monday's planned reopening of a 1694 synagogue a few hundred metres from the compound, could re-ignite protests.
The Islamist Hamas movement ruling the Gaza Strip declared Tuesday a "day of rage and alarm" over the opening of the Hurva synagogue in the Old City, calling on Arabs and Muslims to "come to the aid of Jerusalem and Al-Aqsa." - AFP/de
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