The dispute between the United States and Israel over the razing of Palestinian homes in East Jerusalem is intensifying and will likely become the first clash between the Obama administration and the government of Benjamin Netanyahu.

The U.S. argues that the destruction of homes constitutes a violation of commitments made as part of the road map. Israel says this is a domestic issue of law enforcement and that the future status of Jerusalem is only to be discussed in the final status negotiations.

"Apart from a dispute this issue will lead to nothing," a senior government official told Haaretz.

U.S. attention to the demolitions began after the visit to the region by U.S. Secretary of State Hillary Clinton, catching Israel by surprise. Clinton was highly critical of Israel regarding the matter during her visit. She said that the demolitions of Palestinian homes in East Jerusalem did not contribute to the peace process. Clinton was under considerable pressure from the Palestinian Authority to condemn the razings. The PA says the demolitions are politically motivated and insists that the issue is a bilateral one between Israel and the Palestinians.

Following Clinton's criticism the State Department asked Israel for detailed clarifications on the issue. Even before Israel had a chance to respond, Jerusalem Mayor Nir Barkat added fuel to the fire by suggesting that Clinton's criticism was baseless.

The Americans reiterated during talks with Israeli officials that the demolitions are a contravention of the road map for peace. An April 2003 document approved by the cabinet states that no punitive action will be taken against Palestinians such as home demolitions.

Senior Foreign Ministry officials who discussed the matter with their U.S. counterparts argued that the East Jerusalem demolitions were not punitive, but rather part of enforcing municipal building codes.

In response to a State Department request Jerusalem prepared a detailed letter on the legal background to the issuing of demolition orders. The Foreign ministry argued that the matter is not a political one, but rather a legal one, and that all demolition orders were approved following a hearing of appeals at the Supreme Court.

The Foreign Ministry also insisted that the matter is internal and suggested that no U.S. involvement is necessary.

A senior political source in Jerusalem said the matter represents a serious disagreement between Israel and the U.S. that will be raised at the start of the dialogue between Washington and the Netanyahu government.

The Israeli embassy in Washington called the issue "sensitive" and said Israel is keen on "restoring the matter to its true proportions so that [the U.S. does] not seek clarification every time a home is demolished in East Jerusalem."

An Israeli diplomat added that "We intend to go to great lengths to reassure the American administration."