JERUSALEM - Vice President Joe Biden told Palestinian leaders in the West Bank, Wednesday, they deserve an independent state.

On day three of his Middle East tour, Biden also said the U.S. is committed to brokering a peace deal with Israel.

Yet, just hours after pledging that support, Israeli officials announced a new building project in East Jerusalem -- putting a cloud over pending peace talks.

Israel's decision to approve hundreds of new housing units drew sharp criticism from the U.S. and the Palestinians.

Biden condemned the building announcement in a statement saying it is "precisely the kind of step that undermines the trust we need right now and runs counter to the constructive discussions that I've had here in Israel."

The Israeli move came this week after the U.S. announced indirect Israeli-Palestinian negotiations would begin after a 14-month stalemate.

Palestinian officials said they appreciated the strong U.S. condemnation of Israel.

"We appreciate the condemnation we had from the international community and hope they take the extra step, extra mile of having the Israeli government revoke these orders," Palestinian Authority negotiator Saeb Erekat said.

Ramat Shlomo is an existing Jewish neighborhood in the eastern section of Jerusalem that Palestinians hope will one day become the capital of a future Palestinian state.

Israeli Prime Minister Benjamin Netanyahu's spokesman Mark Regev said Israel has taken unprecedented steps to get the peace process moving.

"We're currently in the middle of a 10-month moratorium and to get the peace process back on track," he said. "But I want to be clear in the Israeli position. We make a clear distinction in the West Bank and Jerusalem. Jerusalem is our capital and it will remain as such."