The latest crisis comes as Washington scrambles for a formula to allow the Palestinians and Israelis to carry on the peace talks beyond an April 29 deadline.
"Israel's settlement activity caused the negotiations to fail and led them to an impasse," Nabil Abu Rudeina, a spokesman for Palestinian president Mahmud Abbas, told AFP yesterday.
Abu Rudeina was reacting to the decision of an Israeli defence ministry committee, revealed earlier yesterday, to push forward with plans to build 2,269 new West Bank homes.
The same committee approved 1,254 units in Ariel, Shvut Rachel and Shavei Shomron. Those projects will be published in the media for public comment before returning to the committee for further discussion.
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Israeli-Palestinian peace talks are teetering on the brink of collapse, with Washington fighting an uphill battle to get the two sides to agree to a framework proposal to extend the negotiations to the year's end.
A US State Department spokeswoman, Jennifer Psaki, said that Secretary of State John Kerry had "expressed his concerns" to Israeli Prime Minister Netanyahu about recent remarks by Yaalon disparaging the United States' negotiations with Iran over its nuclear programme.
So far, the Palestinians have flatly refused to consider any extension, partly over Israel's persistent settlement construction which has shown no let-up since talks resumed last July.
Israeli anti-settlement watchdog Peace Now said the planned new units would create "facts on the ground that distance us from the two-state solution".