The Israeli Interior Ministry on Monday said it will move forward with plans to build 1,300 new apartments in east Jerusalem.
The move drew harsh criticism from the Palestinians.
"We thought that Netanyahu would go to the States to announce a cessation of settlement activities to pave the way for direct negotiations to resume," said Saeb Erekat, the chief Palestinian negotiator.
"Unfortunately, he chose to send a strong message that his choice is settlements and not peace," he added.
News of the construction came as Israeli Prime Minister Benjamin Netanyahu is visiting the U.S., where he met with Vice President Joe Biden.
The Obama administration is frustrated with Netanyahu for refusing to curb construction on the West Bank - a key negotiating point in the peace talks.
"We were deeply disappointed by the announcement of advanced planning for new housing units in sensitive areas of East Jerusalem," said U.S. State Department spokesman P.J. Crowley. "It is counterproductive to our efforts to resume direct negotiations between the parties."