Palestinians complain to Biden about settlement plan

"Messages have been sent to Biden and the Americans that there was no intention to undermine him," a senior Israeli official said. "We were genuinely surprised, just as surprised as the Americans."

Netanyahu took no steps to reverse the decision. Israel considers all of Jerusalem its indivisible and eternal capital. Palestinians want East Jerusalem as the capital of a state they hope to establish in the West Bank and Gaza Strip.

Shas's promotion of the plan was an indication to the Obama administration of the problems Netanyahu would face within his government should he make bold moves, as Washington has demanded, towards a land-for-peace deal with Palestinians.

Biden kept Netanyahu and wife Sara waiting for 90 minutes at a dinner they were hosting for him and his spouse Jill on Tuesday, after the project was made public.

"I condemn the decision by the government of Israel to advance planning for new housing units," Biden said in a statement issued after he finally arrived for the meal.

He said the blueprint for Ramat Shlomo, a religious Jewish settlement, "undermines the trust we need right now and runs counter to the constructive discussions that I've had here in Israel."

(Additional reporting by Alastair Macdonald and Ari Rabinovitch in Jerusalem, Mohammed Assadi in Ramallah, Ali Sawafta and Tom Perry in Ramallah, Writing by Jeffrey Heller, Editing by Samia Nakhoul)