The Palestinians pulled out of indirect peace talks with Israel, mediated by the US, earlier this month after Israel announced plans to build 1,600 settlements on occupied Palestinian land.

The move also caused a rift with the US as the announcement came during a visit to Israel by Joe Biden, the US vice-president.

'Tense' meeting

In his talks with Obama, the Israeli leader discussed the issue of construction in East Jerusalem, the area of the city that Palestinians want as the capital of a Palestinian state.

in depth

  Israel expands settlements
  Israelis protest freeze
  Map of East Jerusalem housing plan
  Comments: US-Israel relations
  Jerusalem's religious heart
  Strain on US-Israel ties
  Q&A: Jewish settlements
  Riz Khan:
  Middle East peace process
  Battle over settlements
  Inside Story:
  US and Israel poles apart
  Israel: Rise of the right
  Holy Land Grab

Robert Gibbs, the White House spokesman, said the discussions, held on Tuesday, were "honest and straightforward", but he did not elaborate on what Netanyahu had been asked to do to restore confidence.

"There are areas of agreement and there are areas of disagreement," Gibbs said.

Israeli sources said earlier that Netanyahu could not finalise any confidence-building measures until he presented them to his cabinet.

In an unusual step, no photographs of Netanyahu's meeting with Obama at the White House were permitted and no news conference was held afterwards.

The reportedly tense meeting was the first between the two leaders since relations between the two allies were soured by the Israeli announcement of the building in occupied East Jerusalem.

Later American officials said last-minute talks between Netanyahu and George Mitchell, the US envoy to the Middle East, had not ended tensions over the construction plans, according to reports by The Associated Press news agency.

Mark Toner, the deputy state department spokesman, said that in the meetings the US had "made clear it is looking for steps to increase confidence and show commitment to the process".

But Netanyahu offered no concessions during his visit and the Israeli government has refused to back off steady expansion of Jewish neighbourhoods in the majority Arab city section.

The situation was compounded on Wednesday when, during Netanyahu's visit, the Jerusalem municipality approved 20 new apartments for Jews in East Jerusalem.

'Distorted' report

The White House subsequently released a statement condemning the plan to build the housing units and a car park on the site of the Shepherd Hotel.

An aide to Netanyahu said the prime minister had been caught off guard by the announcement.


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But the building permit was reportedly issued last Thursday, three days after the necessary fees were paid, meaning the final approval was given before Netanyahu began his visit to Washington on Monday.

Jerusalem city hall said media reports on the subject were "distorted" and meant to provoke during Netanyahu's Washington trip.

"Once the construction permits have been paid for they are automatically issued," a spokesman said on Israeli public radio.

When the project was approved in July, Washington demanded it be halted and summoned Michael Oren, Israel's ambassador to the US, to be reprimanded.

Netanyahu himself highlighted the reason for his country's division with its key ally on Monday, at the start of his visit to the US,  when he addressed the American Israel Public Affairs Committee (Aipac).

"The Jewish people were building Jerusalem 3,000 years ago and the Jewish people are building Jerusalem today," Netanyahu said. "Jerusalem is not a settlement. It's our capital."