A very perturbed Mr. Biden condemned the move as “precisely the kind of step that undermines the trust we need right now,” adding that "sometimes only a friend can deliver the hardest truth."

But the rhetoric between the two sides did not stop there.

US Secretary of State Hillary Rodham Clinton on Friday joined in the chorus of condemnation, criticizing Israeli Prime Minister Benjamin Netanyahu for his government's surprise announcement, which gave "a deeply negative signal" for the Mid-East peace process, as well as Israel-US relations.

"The announcement of the settlements on the very day that the vice president was there was insulting," Clinton said in an interview with CNN Friday. "It was just really a very unfortunate and difficult moment for everyone, the US, our vice president who had gone to re-assert America's strong support for Israeli security, and I regret deeply that that occurred and made that view known."

If Israel’s plans proceed, the new residential units will be built in Ramat Shlomo in East Jerusalem.

Approximately 500,000 Jews now reside in more than 100 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem. The housing settlements are considered illegal under international law, although Israel disputes this claim.

The diplomatic fracas between Jerusalem and Washington comes at a very sensitive moment. Next week, Moscow will host the Quartet of Mid-East peacemakers, comprised of the US, the European Union, United Nations and Russia, for talks on how to move the peace process along. Hillary Clinton, incidentally, will be in attendance at the summit.

The Quartet also issued a statement on Israel’s announcement for new settlement construction in occupied East Jerusalem territory: “The Quartet has agreed to closely monitor developments in Jerusalem and to keep under consideration additional steps that may be required to address the situation on the ground.”

The members did not elaborate on what steps would be taken, but said the Quartet members "would take full stock of the situation" when they meet in the Russian capital next Friday.

Finally, Israel's ambassador to the US has said that relations between the two countries face their worst crisis for 35 years, Israeli media reported on Monday.

Israel’s ambassador to the US, Michael Oren, told a conference call with Israeli consuls general in the US that "the crisis was very serious and we are facing a very difficult period in relations", Israeli media reported on Monday.

On Friday, Ambassador Oren was summoned to the US State Department and was reprimanded about the announcement, the Israeli Ynet News website reported.

Ynet quoted the ambassador as saying “Israel's ties with the US are in the most serious crisis since 1975.”

Oren was making reference to the time when US Secretary of State Henry Kissinger demanded that Israel's Prime Minister Yitzhak Rabin partially withdraw Israeli troops from the Sinai Peninsula, where they had been stationed since the 1967 Six-Day War.

Meanwhile, Haaretz, the Israeli daily, reported on Monday that during a lengthy phone conversation between Clinton and Netanyahu shortly after the settlement announcement was issued, the US Secretary of State made a list of demands that Washington wants to see enacted in order to put the peace process back on track. Among the “confidence-building” demands are:

1. Investigate why the Ramat Shlomo construction plan was announced in the middle of Biden's visit. The Americans want an official response from Israel on whether this was a bureaucratic blunder or a deliberate move carried out for political motive. Already on Saturday night, Haaretz reported, Netanyahu announced the convening of a committee to look into the issue.

2. Reverse the decision by the Jerusalem District Planning and Building Committee to approve construction of 1,600 new housing units in Ramat Shlomo.

3. Make a “substantial gesture” toward the Palestinians enabling the renewal of peace talks.

4. Issue an official declaration that peace talks with the Palestinians, even indirect talks, will specifically deal with the conflict's core issues – “borders, refugees, Jerusalem, security arrangements, water and settlements.”

On Sunday, David Axelrod, a top aide to US President Barack Obama, said Israel's announcement of plans to build 1,600 homes for Jews in East Jerusalem was "destructive" to peace efforts.

Axelrod said the move, which overshadowed the Vice President’s trip to Israel, was also an “insult” to the United States.

Israeli Prime Minister Benjamin Netanyahu is working hard to play down the diplomatic row between the two allies, saying that he was unaware that the announcement would be made during Biden’s visit.

However, in a speech Monday to Israel’s parliament, the Israeli leader argued that Jewish construction in east Jerusalem does not hurt the city's Palestinian residents.

Netanyahu said the construction of homes for Jews in the city's eastern sector “in no way” hurts Palestinians, while giving no indication he would cancel the project or limit construction in east Jerusalem.

The Palestinians are threatening to boycott newly agreed, indirect talks unless the Ramat Shlomo project is cancelled.

Robert Bridge, RT