"Israel has destroyed all the US efforts and ended any possibility of a return to negotiations," Nabil Abu Rudeina, spokesman for Palestinian president Mahmud Abbas said Sunday in a statement after Israeli forces demolished part of a former hotel in east Jerusalem.
The Hotel Shepherd is being partially demolished to make way for 20 new homes for Jewish settlers in the east Jerusalem neighbourhood of Sheikh Jarrah.
"Israel has no right to build in any part of east Jerusalem, or any part of the Palestinian land occupied in 1967," Abu Rudeina said, calling on the United States to "stop Israeli tampering."
On Sunday morning, three bulldozers tore down part of the dilapidated hotel, which was once the home to Jerusalem's mufti religious leader, Haj Amin al-Husseini, who became infamous for his ties to Nazi leader Adolf Hitler.
The Jeddah-based Organisation of the Islamic Conference blasted the demolition as a "flagrant violation of international law." Though east Jerusalem is largely Palestinian, an increasing number of hardline Israeli settlers have moved into the area's neighbourhoods, sparking fights with Arab residents.
An estimated 2,000 Jewish settlers live in Palestinian neighbourhoods in annexed east Jerusalem, although the exact number of properties they own is unclear.
Talks between Israel and the Palestinians have been on hold since the end of September, when an Israeli freeze on the construction of Jewish settlements expired.
Abbas has insisted he will not hold peace talks while Israel continues to build on land the Palestinians want for their future state.
The United States spent weeks trying to secure an extension of the settlement freeze, which expired just weeks after direct peace talks restarted for the first time in nearly two years.
But Washington eventually admitted it had failed to convince Israel to reimpose the ban, even for a three-month period, and called on both sides to resume indirect negotiations.
Israel said on Saturday that its chief peace negotiator, Yitzhak Molcho, would travel to Washington next week to renew contacts with the Palestinians.
But the Palestinians have said they will not hold any talks with Israel without a new settlement freeze.