Prime Minister Benjamin Netanyahu on Saturday said he would establish a committee to probe Israel's announcement this week that it would construct 1,600 new housing units in East Jerusalem, which has since led to a diplomatic crisis with the United States.

"Prime Minister Netanyahu decided to create a team to probe the events that unfolded during U.S. Vice President Biden's visit to Israel," read a statement from the Prime Minister's Office.

"The team will formulate regulations to prevent the recurrence of similar incidents in the future," the statement continued.

The U.S. has waged harsh criticism of Israel's announcement on Tuesday about new settlement construction - a move that deeply embarrassed the visiting Biden and imperiled U.S. plans to launch indirect negotiations between Israel and the Palestinians.

The team will be headed by Director-General of the Prime Minister's Office, Eyal Gabai, and will include members of the Interior Ministry, Housing Ministry and the Jerusalem Municipality.

Netanyahu earlier on Saturday said he was surprised by the U.S. administration's public condemnation of his government over the building plan in East Jerusalem.

Sources in the Prime Minister's Office said the crisis appeared to be orchestrated by the U.S. administration, as Netanyahu apologized to U.S. Vice President Biden and believed that the crisis was behind the two allies.

Netanyahu on Saturday evening convened a meeting of the forum of seven cabinet ministers to discuss the diplomatic tension with the Obama administration, and is expected to issue a formal statement about the matter at the start of Sunday's weekly cabinet meeting.

The prime minister has repeatedly said he was unaware of the East Jerusalem construction plan.

Meanwhile, U.S. Secretary of State Hillary Clinton on Friday called Israel's announcement "insulting" to the United States.

"I mean, it was just really a very unfortunate and difficult moment for everyone - the United States, our vice president who had gone to reassert our strong support for Israeli security - and I regret deeply that that occurred and made that known," Clinton said during the CNN interview.

Clinton did not blame Netanyahu personally for the announcement, but she said, "He is the prime minister. Like the president or secretary of state...ultimately, you are responsible."

Netanyahu spoke with Clinton over the weekend in what was later described to reporters as a 45-minute conversation in which the premier mostly remained quiet and listened to Clinton's scathing criticism.

Also on Friday, Israeli envoy to the U.S. Michael Oren was summoned for a meeting with U.S. Deputy Secretary of State James Steinberg.

A senior U.S. official predicted "a dicey period here in the next couple days to a couple of weeks" as Palestinians demanded the reversal of the plan.

Netanyahu on Friday also called European officials including German Chancellor Angela Merkel and Italian President Silvio Berlusconi to discuss the crisis with the U.S.

"This was an embarrassing incident," Netanyahu told the European leaders. "I admit that and I am sorry, and I even apologized to Vice President Biden, but I was not in any way aware of the building plan ahead of the announcement."

Netanyahu also discussed Israeli construction in East Jerusalem with the two leaders, saying, "This government's policy regarding building in East Jerusalem is no different than that of any other government."

He added, "In all negotiations conducted up until now, Israel has clarified for the Palestinians and the U.S. that these neighborhoods are part of the Jerusalem bloc that will remain in Israeli hands in any final-status agreement."

Netanyahu also told Merkel and Berlusconi that regulations would be implemented to avoid such embarrassments in the future.

Earlier in the week, Netanyahu said he believed that despite the conflict with the U.S. over the plan for new housing in East Jerusalem, indirect talks with the Palestinians would continue as planned early next week.

U.S. Mideast envoy George Mitchell is expected in Israel on Tuesday and is set to meet with Netanyahu.