WASHINGTON — An ill-timed municipal housing announcement in Jerusalem has mutated into one of the most serious conflicts between the United States and Israel in two decades, leaving a politically embarrassed Israeli government scrambling to respond to a tough list of demands by the Obama administration.
On Monday, however, Prime Minister Benjamin Netanyahu sounded a defiant note, telling the Israeli parliament that construction of Jewish housing in Jerusalem was not a matter for negotiation.
Netanyahu is struggling to balance an increasingly unhappy ally in Washington with the restive right wing of his coalition government.
The Obama administration has put Netanyahu in a difficult political spot at home by insisting that the Israeli government halt a plan to build housing units in East Jerusalem. The administration also wants Israel to commit to substantive negotiations with the Palestinians, after more than a year in which the peace process has been moribund.
With the administration's special envoy, George Mitchell, suddenly delaying his planned trip to Israel, the administration was expecting a call from Netanyahu, after a tense exchange last week with Secretary of State Hillary Rodham Clinton.
The prospects for peace in the Middle East seemed murkier than ever, as a year's worth of frustration on the part of President Barack Obama and his aides seemed to boil over in their furious response to the housing announcement, which spoiled a visit to Israel by Vice President Joe Biden.
The New York Times quoted a senior administration official, who spoke on the condition of anonymity, as saying what happened to the vice president in Israel was unprecedented.
But the diplomatic standoff also has repercussions for Obama. A blunt criticism of Israel — delivered publicly by Clinton in two television interviews on Friday and reiterated Sunday by Obama's political advisor, David Axelrod — has set off a storm in Washington, with pro-Israel groups and several prominent lawmakers criticizing the administration for unfairly singling out a staunch ally.
"Let's cut the family fighting," said Sen. Joe Lieberman, an independent from Connecticut. "It's unnecessary; it's destructive of our shared national interest. … It just doesn't serve anybody's interests but our enemies."
Relations between Israel and the United States have been uneasy ever since Obama took office with a plan to rekindle the peace process by coupling a demand for a full freeze in Jewish settlement construction with reciprocal confidence-building gestures by Arab countries.
Neither happened, and Obama, who is not as popular in Israel as he is elsewhere around the world, was forced last September to make do with Netanyahu's offer of a 10-month partial moratorium on settlements in the West Bank. But the president was outraged by the announcement of 1,600 housing units in an ultra-Orthodox neighborhood in East Jerusalem during Biden's visit, administration officials said.
Obama was deeply involved in the strategy and planning for Biden's visit and orchestrated the response from Biden and Clinton after it went awry.
The administration has used language designed to telegraph anger, defining the dispute not only in terms of the damage it could cause to the peace process but to the American relationship with Israel.
"That is a whole different order of magnitude of importance," said Daniel Levy, a former peace negotiator who is senior fellow and head of the Middle East Initiative at the New America Foundation.
The last time relations between the United States and Israel became this strained, analysts said, was when James Baker, then secretary of state, clashed with the Israeli government in the early 1990s, also over settlement policy. The United States ended up withholding loan guarantees from Israel for a time.
Netanyahu said the announcement of the housing development had surprised even him, and he apologized for its timing.
The Israeli ambassador in Washington, Michael Oren, used the word "crisis" about his country's relations with Washington for the first time since taking up his job last year, in a telephone briefing to colleagues over the weekend, the New York Times reported, quoting an Israeli official.
Still, U.S. and Israeli officials also made clear that the core security issues binding the two countries were not in jeopardy, and that what was happening was closer to a married couple having a bad fight rather than seeking a divorce.
The dispute comes a week before the American Israel Public Affairs Committee, the most influential pro-Israel lobbying group, meets in Washington. Netanyahu and Clinton are both scheduled to speak to the group, which has condemned the White House's tough stance.
There is no meeting between Obama and Netanyahu because the president will be traveling in Indonesia and Australia.