U.S. State Department spokesman P.J. Crowley said Israel's decision on Monday to raze 22 Palestinian homes in East Jerusalem is the kind of step that undermines trust fundamental to progress in the proximity talks between Israel and the Palestinian Authority.
Senior U.S. officials have asked Netanyahu's office to explain why the plan was authorized, saying that Washington will issue an official condemnation of the demolitions.
The Jerusalem municipal planning committee approved Monday a contentious plan to raze 22 Palestinian homes to make room for a tourist center that Palestinians fear would tighten Israel's grip on the city's contested eastern sector.
The plan, which affects the neighborhood of Silwan in East Jerusalem, risks more U.S.-Israeli friction just two weeks ahead of Prime Minister Benjamin Netanyahu's meeting with U.S. President Barack Obama.
Crowley said the United States was concerned about the project, though he said it was a preliminary step being taken by the Jerusalem municipality and not the Israeli government.
"We've had a number of conversations with the government of Israel about it," Crowley said. "This is expressly the kind of step that we think undermines trust that is fundamental to making progress in the proximity talks," referring to the indirect, U.S.-mediated peace negotiations.
The Palestinian government issued a statement on Monday in regards to the plan, in which it emphasized that "these dangerous steps require American and international intervention."
According to Israel Radio, chief negotiator Saeb Erekat commented on the plan as well and said the move shows Israel wants to destroy the indirect peace talks with the Palestinians.
Erekat called on the international community to "halt these dangerous steps" and said that the move "proves that Israel has decided to destroy the indirect talks with the Palestinians."
Tensions have already been raised in Jerusalem, when conflict erupted during the meeting between committee members and the residents of Silwan. Silwan residents starkly objected to the plan and demanded the committee discuss their alternative plan, which does not include razing homes.
Several lawyers representing the residents spoke out against the committee's decision.
"I also want to have a park in the neighborhood where I can sit on the weekends and dip my feet in the water, but if the committee has the courage to approve a plan against the will of the residents, and to raze their homes for it, then it should have the same courage to discuss their alternative plan as well," said one of the lawyers.
Barkat first floated the plan months ago, but agreed to a last-minute request from Israel's prime minister to consult Palestinian residents before breaking ground. Israeli demolition of Palestinian homes has in the past provoked harsh reaction from the United States.
Palestinians hope to build the capital of a future state in East Jerusalem and see any Israeli construction there as undercutting their claims to the land.
Although Israel claims it is simply enforcing the law by knocking down illegally built structures, many of the unapproved homes have gone up without authorization because Palestinians have a hard time obtaining construction permits in East Jerusalem.
Barkat says the plan gives a much-needed facelift to Jerusalem's decaying al-Bustan neighborhood, which Israel calls Gan Hamelech, or the King's Garden.
The plan calls for the construction of shops, restaurants, art galleries and a large community center on the site where some say the biblical King David wrote his psalms. The 22 displaced families would be allowed to build homes elsewhere in the neighborhood, though it's not clear who would pay for them.
Israel annexed East Jerusalem immediately after capturing it from Jordan during the Six-Day War in 1967.
Israeli sovereignty there has not been recognized by the Palestinians or the international community, and the fate of the city is one of the core issues dividing the two sides. Nearly 200,000 Jews have moved to East Jerusalem since Israel captured it, living in an uneasy coexistence with 250,000 Palestinians.
Activists in Al-Bustan, who had sought to block all demolitions, said in a statement that the plan comes in the general context of (the) fast-track Judaization of East Jerusalem.
It pre-empts "the possibility of Jerusalem ever being a shared city, or indeed capital of a Palestinian state," the statement said. "This in itself precludes peace."
The contested site is a section of a larger neighborhood called Silwan, which is home to some 50,000 Palestinians and 70 Jewish families. Demolitions elsewhere in Silwan have made the neighborhood a hub of tension between Palestinians fearful of eviction and Jews determined to keep the city Israel's undivided capital.
Apparently fearing stiff criticism from the U.S., Israeli Prime Minister Benjamin Netanyahu pressured Barkat in March to hold up the plan to consult with Palestinians who stood to lose their homes.
"Now, after fine-tuning the plan and seeking more cooperation with the residents as far as their needs and improving the quality of their lives, the municipality is ready to submit the plans for the first stage of approval," Barkat spokesman Stephan Miller said Monday.
The prime minister's office said Netanyahu "hopes that since this project is only in a preliminary stage, that the dialogue can continue with those who have built homes on public land and it will be possible to find an agreed solution in accordance with the law."
The U.S. Embassy had no comment.
Since Netanyahu initially delayed the plan, he has found himself in deep conflict with the Obama administration over Jewish construction in East Jerusalem.