The United States and Europe are condemning Israel's plan to build in Jerusalem city of Gilo.
The Jewish state approved the construction of 1,100 news homes in the area, a move State Secretary Hillary Clinton called "counter-productive."
"As you know, we have long urged both sides to avoid any kind of action which could undermine trust, including, and perhaps most particularly, in Jerusalem, any action that could be viewed as provocative by either side," Clinton told reporters at a news conference Tuesday.
Click here for CBN News Jerusalem Producer Tzippe Barrow's analysis of the housing situation.
Catherine Ashton, the European Union's foreign policy chief, told the EU parliament Tuesday that she heard "with deep regret" that Israeli building plans were continuing.
Speaking in Strasbourg, France, Ashton said the expansion "threatens the viability of an agreed two-state solution" between the two sides, as backed by the EU, the United States, Russia and the United Nations.
"This plan should be reversed," she said, claiming it undermines peace negotiations with the Palestinians.
The Palestinians want the region as their future capital, but Israel captured the territory in the 1967 Mideast war.
Construction of the new homes is scheduled to begin after a mandatory 60-day period for public comment.