Israel 'sorry' for settlement announcement

"In light of the ongoing disagreement between Israel and the US on building in Jerusalem, the prime minister said there was no need to advance the planning process this week," Netanyahu's office said.

"The (prime minister) spoke to Vice President Biden and expressed his regret for the unfortunate timing," it added.

Israel's announcement sparked an international furore and enraged Palestinians, who have called off plans for indirect talks with Israel until the decision to build the houses is cancelled.

"This announcement during the visit of Mr. Biden was a mistake. It has led to failure and this should not happen again," cabinet secretary Zvi Hauser told public radio.

International condemnation

Hauser said Netanyahu had held a long discussion with Interior Minister Eli Yishai, whose ministry sparked an international furore by making the announcement.

The plans met with a wave of international condemnation, including from the United States, which has been struggling for months to bring the two sides back to the negotiating table.

Israel captured east Jerusalem in the 1967 Six Day War and annexed it in a move not recognised by any other government. It considers the entire city its eternal, indivisible capital.

Palestinians view east Jerusalem as the capital of their promised state and have demanded it be included in a complete freeze of Israeli settlement activity before the launch of any new direct peace talks.

The presence of nearly a half million Israelis in more than 120 settlements scattered across the occupied West Bank, including east Jerusalem, has been a key obstacle in past rounds of peace talks.