Senior officials from Barack Obama's administration have held a secret meeting to discuss the possibility of implementing sanctions against Israel to prevent the government from building new settlements in the occupied West Bank and East Jerusalem, according to local media reports.
The meeting was held following Obama's meeting with Israeli Prime Minister Benjamin Netanyahu in October in Washington and following the argument over Israeli plans to build further settlements in East Jerusalem.
The Obama administration has not decided what sanctions it wishes to place upon Israel, according to Haaretz.
However, State Department spokeswoman Marie Harf refused to confirm or deny the reports of a sanctions plan being implemented.
"I'm obviously not going to comment one way or another on reported internal deliberations," she said. "We've made clear our position on settlement activity publicly and that hasn't changed."
The US is yet to take any action against Israel for its continued construction of settlements, which are considered illegal by international law, but has started to criticise the moves in East Jerusalem and the West Bank over the last year.
Tensions have continued to rise in the Israeli capital following an attempted assassination of a far-right Jewish activist, the suspected lynching of a Palestinian bus driver, and a deadly Palestinian attack on a Jerusalem synagogue which killed five Israelis.
Unrest in the holy city has been exacerbated by developments regarding the Temple Mount, or Al-Aqsa compound, which has witnessed clashes after proposals to enhance Jewish access to the flashpoint site, where they are currently banned from praying.