President Shimon Peres called the United States "a true friend" on Wednesday and said that both Israel and the U.S. want to ease the recent tensions between the two nations.

"We have deep respect for [U.S.] parliamentary and executive institutions, led by President Obama," Peres told a group of high school students in Holon. "We want these relations and are interested in returning them to their regular, positive state."

Speaking about indirect talks with the Palestinians, Peres said such talks, while not ideal, are better than nothing.

"In my opinion, proximity talks can open the path to renewing the peace negotiations," he said. "I can say, on this stage, to our Palestinian neighbors and to whoever is listening - Israel has already made a historic decision to establish two states for two peoples. An Arabic state named Palestine and a Jewish state named Israel. I do not believe or think it possible that there is any other solution."

Prime Minister Benjamin Netanyahu and U.S. Vice President Joe Biden spoke on the phone Tuesday night in a bid to reduce friction between the U.S. and Israel over a plan to construct 1,600 new housing units in East Jerusalem.

The New York Times also said that the American administration had confirmed the conversation. The Prime Minister's Bureau did not elaborate on the details of the conversation, which lasted until 2 A.M. Netanyahu's advisers Yitzhak Molcho and Ron Dermer, along with Israeli envoy to the U.S. Michael Oren, were also present.

Israel's announcement of plans to build 1,600 housing units in East Jerusalem strained ties with the U.S., which has said it regarded last week's decision - made public while Biden was in Israel - as an insult.

Netanyahu is expected to convene a meeting of seven senior cabinet ministers on Wednesday to discuss a response to demands raised by U.S. Secretary of State Hillary Clinton that could help defuse the diplomatic row.

A U.S. State Department spokesman said Clinton and Netanyahu may speak by phone as early as Wednesday. Netanyahu is expected to deliver Israel's official response to Clinton during that conversation.

Clinton's demands include the cancellation of the Ramat Shlomo construction project in East Jerusalem, which was announced during U.S. Vice President Joe Biden's visit to the region last week.

She also wants goodwill gestures toward the Palestinians and a public declaration by Netanyahu of his willingness to discuss the conflict's core issues in the framework of peace negotiations with the Palestinian Authority.

Israel's response had been set to be the main focus of a meeting Wednesday of the forum of seven senior cabinet members, though that meeting will now not take place.

Clinton said Tuesday that Israel must prove it is committed to the Mideast peace process. But she brushed aside suggestions that relations with the main U.S. ally in the Mideast are in crisis over Israeli plans to build new Jewish housing in East Jerusalem.

She stressed that the United States remained committed to Israel's security despite current tensions.

"We are engaged in very active consultations with the Israelis over steps that we think would demonstrate the requisite commitment to the process," Clinton said. She had outlined her steps that Israel could take in a telephone call to Netanyahu on Friday.

State Department spokesman Philip J.Crowley on Tuesday also tried to downplay the tension, saying that no one in U.S. administration used the word "crisis" to describe the situation.

Also on Tuesday, Ambassador Oren said that he was misquoted in the media over the recent diplomatic row.

"Recent events do not - I repeat - do not represent the lowest point in the relations between Israel and the United States," clarified Oren.

"Though we differ on certain issues, our discussions are being conducted in an atmosphere of cooperation as befitting long-standing relations between allies. I am confident that we will overcome these differences shortly."

Netanyahu's office on Tuesday issued a statement that read, "The government of Israel has proved its commitment to peace in the last year in words and in deeds."

Still, in contrast to the tone of messages exchanged in recent days, the statement from Netanyahu's office included praise of Clinton's assertion that ties between Israel and the United States are unbreakable and that Washington remained committed to Israel's security.

The statement also accused the Palestinians of failing to take steps toward launching negotiations with Israel while engaging in incitement in Jerusalem. "We are going above and beyond in an effort to resume negotiations without preconditions and the Palestinians are doing nothing," said a senior aide to the prime minister. "This needs to be clear to the international community."

Discussions between Netanyahu aides and White House officials continued Tuesday in an effort to ease tensions. The U.S. Mideast envoy, George Mitchell, canceled a visit to the region that was scheduled to begin on Tuesday.