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Israel has failed to get the support of its long-time ally, the United States, over its announcement to build 3,000 houses in East Jerusalem and West Bank.
Tel Aviv's announcement came just hours after the UN General Assembly upgraded the status of Palestine to non-member observer state. Both the US and Israel had voted against the resolution on Palestine.
"This administration - like previous administrations - has been very clear with Israel that these activities set back the cause of a negotiated peace," said Hillary Clinton, the US Secretary of State in Washington.
"Some Israelis claim [Palestinian President Mahmoud] Abbas is not a partner for peace. Well, I think that should be tested". Israeli Defence Minister Ehud Barak and Foreign Minister Avigdor Lieberman were also present in the meeting.
Clinton's remarks came a day after the State Department spokesperson Victoria Nuland said, "We're going to be even-handed in our concern about any actions that are provocative, any actions that make it harder to get these two parties back to the table".
In response to the Israel's proposal of building houses, the Palestinian President Mahmoud Abbas' spokesperson Nabin Abu Rudeineh said that "this declaration is a slap in the face of the entire world which chose to vote in favour of the Palestinian state."
However, soon after the UN's status upgrade, the Palestinian President has pledged to pursue his efforts "until we wave the Palestinian flag over east Jerusalem."
Nearly 500,000 Jews have been living in the settlements in West Bank and East Jerusalem despite being deemed as illegal by international law.
When asked about the Israel's move to the construction of houses, the Palestine Liberation Organisation (PLO) executive committee member Hanan Ashrawi told the AFP, "This is Israeli aggression against the Palestinian state and the world must take responsibility. What was announced today is only part of a comprehensive settlement plan."
Nevertheless, the UN's latest recognition of the Palestine's status has brought cheers to many Palestinians. Palestinian Prime Minister Salam Fayyad said: "This achievement has greatly benefitted the efforts invested by the PA on all levels in order to prepare for the establishment of a state."
"The PA is in the final stage before becoming an independent state capable of providing services to its people".