RAMAT SHLOMO, Jerusalem - Israel and the U.S. are hoping to smooth over strained relations during a meeting between Israeli Prime Minister Benjamin Netanyahu and President Obama.
However, some experts in Israel say the problems likely won't go away.
Trouble erupted during the visit of Vice President Joe Biden two weeks ago when Israel announced plans to build 1,600 housing units in a Jewish neighborhood in northern Jerusalem.
Ramat Shlomo was founded in 1995. It has a population of some 20,000 mostly ultra-Orthodox Jewish residents.
The announcement was only a mid-level stage in the development plan. It will be years before the units are even built.
Although many have referred to Ramat Shlomo as a "settlement," Israel considers it a neighborhood inside the Jerusalem municipality.
Jerusalem Post deputy managing editor Caroline Glick says hundreds of thousands of Jews live in such Jerusalem neighborhoods - where Palestinians want the capital of a future state.
"What the Obama administration is effectively saying is that what their vision of what peace involves, it involves a Jerusalem that is cleaned, that is ethnically cleansed of Jews," Glick said.
Pollster Mitchell Barak says there could be a hidden agenda behind the uproar.
"For the Obama administration's objective they would much rather have someone else as prime minister of Israel," he said. "Someone in a left of center party."
"What we see is the same administration that wouldn't lift a finger to have their voices be heard in last year's presidential elections in Iran that were stolen by Ahmadinejad," Glick added. "That same administration is now trying to enact regime change in America's closest ally in the Middle East."
Concern that Israel might carry out an attack on Iran's nuclear facilities could also be playing a part in the controversy.
"This may be being used by the Obama administration to kind of put Israel in its place so that Israel will not do anything rash like attack the Iranians without U.S. approval," Barak said.
The crisis in U.S.-Israeli relations also spawned friction in Jerusalem and the West Bank as Palestinians emboldened by the controversy rioted and rocket attacks from Gaza increased.
Despite the upcoming indirect peace talks, prospects for peace still seem elusive.