Following Public Security Minister Yitzhak Aharonovitch's statement on Wednesday that Israel will demolish Arab homes in East Jerusalem, the United States warned Israel and the Palestinians of taking inciting steps in Jerusalem.

"As we have said, if either side takes significant actions during the proximity talks that we judge would seriously undermine trust, we will respond to hold them accountable and ensure that negotiations continue."

Earlier on Wednesday, Aharonovitch said that Israel will demolish Palestinian homes in East Jerusalem in the coming days despite the renewal of indirect peace talks.

The State Department further emphasized the U.S. stance on Jerusalem and expressed faith in the success of the indirect negotiations between the Palestinians and Israel.

"Our policy on Jerusalem remains unchanged. The status of Jerusalem is an issue that should be resolved in permanent status negotiations between the parties. This underlines the importance of making progress in the proximity talks to enable the parties to move to direct negotiations that will resolve this and other issues once and for all," said the U.S. official.

Aharonovitch made his remarks at Wednesday's Knesset plenum session, during which he said that demolitions had been postponed in recent months so as not to harm efforts by U.S. special envoy George Mitchell to get peace talks off the ground.

Aharonovitch, however, clarified that currently there is no order in effect instructing police to not to raze homes.

"As of right now, there is no directive for police not to implement the demolition orders," said Aharonovitch, adding that Jerusalem Police are prepared to deploy the forces necessary for the demolitions.

The minister also said that the demolitions were postponed because some in Israel's political echelons felt the timing was wrong. "If there was a postponement, it has now ended," he said.

Prime Minister Benjamin Netanyahu on Wednesday said Israel plans to prioritize Jerusalem over other areas, during a special Knesset session marking Jerusalem Day.

Netanyahu also said, "There are those among us who lament the very day Jerusalem was liberated and the capital of Israel was freed from its stranglehold."

Netanyahu told the special Knesset session that "Jerusalem" and its alternative Hebrew name "Zion" appear 850 times in the Old Testament, Judaism's core canon.

"As to how many times Jerusalem is mentioned in the holy scriptures of other faiths, I recommend you check," he said.

Heckled by a lawmaker from Israel's Arab minority, Netanyahu offered a lesson in comparative religion from the lectern. "Because you asked: Jerusalem is mentioned 142 times in the New Testament, and none of the 16 various Arabic names for Jerusalem is mentioned in the Koran. But in an expanded interpretation of the Koran from the 12th century, one passage is said to refer to Jerusalem," he said.

"There is no undercutting, nor do I intend to undercut, the connection of others to Jerusalem," Netanyahu said.

"But I do confront the attempt to undercut and warp or obfuscate the unique connection that we, the people of Israel, have to the capital of Israel."

Construction in East Jerusalem has been a major sticking point between Israel and the U.S. since Israel infuriated Washington in March by announcing a major new East Jerusalem housing development during a visit by U.S. Vice President Joe Biden.