Already disappointed by Palestinian distaste for the new US-backed proposal to resume long-stalled negotiations, the Obama administration was taken aback anew on Tuesday when Israel announced plans to construct new Jewish housing units in east Jerusalem.

The Israeli move made a hard job even harder for the United States, which is trying to protect Israel from a UN vote on Palestinian statehood that Israel bitterly opposes. Secretary of State Hillary Rodham Clinton called the housing announcement "counterproductive" to new peace talks, the only path to Palestinian statehood the US and Israel say they will accept.

Palestinians claim east Jerusalem as the capital of their future state, and the expansion of Israeli-built housing there is among the most explosive issues keeping the two sides from making a deal.

The Palestinians, who have been demanding a freeze in settlement activity to return to the table, said the announcement of 1,100 new Jewish housing units prove Israel is not interested in talks.

The Israeli announcement met with swift criticism from the US and the European Union, which along with the United Nations and Russia, form the international "Quartet" of Mideast mediators. The Quartet proposed a new formula for talks last week after the Palestinians submitted at the UN Security Council their bid for recognition and UN membership.

"This morning's announcement by the government of Israel," Clinton said, "is counterproductive to our efforts to resume negotiations between the parties. We have long urged both sides to avoid any kind of action which could undermine trust, including and perhaps most particularly in Jerusalem, any action that could be viewed as provocative by either side."

 Expressing some frustration, Clinton told reporters at the State Department that "we have been here before, over many years." She was referring to similar Israeli announcements that have goaded the Americans and further hardened the Palestinian position. But she added that the difficulties in making progress on a two-state agreement "only reinforces (that) our focus must remain working to convince the parties to return to direct negotiations."

The White House added that it was "deeply disappointed" by the Israeli announcement, which came less than a week after the Quartet proposed renewed talks with firm deadlines for progress.

"Each side in the dispute between the Palestinians and Israelis should take steps that bring them closer to direct negotiations to resolve the issues that stand in the way of Palestinian statehood and a secure Jewish state of Israel," spokesman Jay Carney told reporters aboard Air Force One. "When either side takes unilateral action that makes it harder to achieve that, we make our views known."

Israel's Interior Ministry said the homes would be built in Gilo, a sprawling Jewish enclave in southeast Jerusalem, and construction could begin in two months. Israeli Prime Minister Benjamin Netanyahu ruled out any new freeze in settlement construction, a key Palestinian demand, raising tensions and further challenging the US and its Quartet partners.

Standing alongside Clinton, Portuguese Foreign Minister Paulo Portas acknowledged that Israel's move Tuesday amounted to a setback.

"When you have a real chance (for) negotiations, you avoid hostile measures to negotiations," Portas told reporters at the State Department. "The settlement decision is not a good one." Portugal, one of 15 UN Security Council members, supports talks based on the Quartet's parameters but also would "consider an upgrade of the Palestinian position in the United Nations as a sign of goodwill to negotiate," he said.

The Quartet had hoped that new talks aimed at creating a Palestinian state would persuade the Palestinians to put their separate bid for UN recognition on hold. The proposal envisions the Israelis and Palestinians agreeing on an agenda and parameters for peace talks within a month and producing comprehensive proposals on territory and security within three months. The Quartet said it then expected the parties to "have made substantial progress" within six months. The goal would be to have a peace deal by the end of 2012.

By endorsing the Quartet proposal, the Obama administration may have managed to buy a little time, but it may also have manoeuvred itself into a corner.

Committing to those detailed deadlines raises potentially unrealistic hopes for success and locks the administration into a process that will play out as President Barack Obama fights for re-election next year.

Even worse would be rejection of the proposal by the Israelis and Palestinians, which is what appears to be happening.

For the US the Quartet statement was a small victory after weeks of disappointment and days of intense negotiations that failed to stop Palestinian leader Mahmoud Abbas from formally seeking statehood recognition for Palestine.

The UN route to statehood is vehemently opposed by Israel, which wants a say in how and where the future state is created. The United States, as Israel's strongest ally and chief defender at the UN, has acted as a bulwark.

That put the Obama administration at odds with the Abbas government it supports and on the wrong side of public opinion among Arab and Muslim publics Obama has courted.

The Quartet statement took note of Abbas' submission to the UN Security Council but did not mention it further.

The US has vowed to veto the move in the Security Council, which is expected to take up the matter again on Wednesday.