State Department Retaliates for Israel's Defiance on Housing Plan

The standoff between Israel and the Obama White House over plans to expand Jewish housing in East Jerusalem escalated today with Israel insisting the construction will go ahead as scheduled and the State Department indicating that a trip by special envoy George Mitchell will be delayed.

Mitchell was scheduled to leave for the Mideast tonight with the assignment of salvaging peace talks between the Israelis and Palestinians. The trip has been delayed until tomorrow at the earliest. Those talks are threatened by the announcement last week that Israel planned to build another 1,600 units of housing for Jews in East Jerusalem.

VIDEO: Prime Minister Netanyahu refuses to back down over settlement plans.Play
Tensions Rise Between Israel And U.S.

The announcement, which came as Vice President Joe Biden was visiting Israel, was blasted as an "insult" by the Obama administration. Secretary of State Hillary Clinton called Israeli Prime Minister Benjamin Netanyahu Friday to insist he rescind the announcement and make other overtures to the Palestinians.

Instead, Netanyahu made defiant comments today to the Knesset and to members of his Likud Party.

"The building in Jerusalem and in all other places will continue in the same way as has been customary over the last 42 years," he told a Likud gathering.

VIDEO: U.S., Israel at Odds Over SettlementsPlay

In the Israeli parliament, or Knesset, he told lawmakers that expanding Israeli settlements in East Jerusalem did not harm the Palestinians.

"The building of those Jewish neighborhoods did not hurt in any way the Arabs of East Jerusalem and did not come at their expense," he said.

Hours later, the State Department suggested Mitchell would delay his trip to Israel and the Palestinian territories.

"George Mitchell intends to be in the region this week. However, his schedule is not yet set," State Department spokesman P.J. Crowley told reporters. "This is a fluid situation.

"We want to make sure that we have the commitment from both sides that when he travels, we can make progress," he said.

Crowley would not comment on Netanyahu's comments, saying only, "We asked for a formal response from the Israeli government and when we get that response we'll react to it."

Netanyahu Tries to Protect His Coalition and His Alliance

An Israeli official in Washington told ABC News that there has not yet been an "official" Israeli response to the U.S. and gave no indication through what channel that might take place.

Mitchell's trip to the region had been expected to focus more on talks with the Palestinian side, so his going out a day later may just reduce the amount of time he has to talk to Israeli officials.

Netanyahu leads a right wing coalition and is known as a reluctant adherent to the deal hammered out by the Bush and Olmert administrations to create a Palestinian state on land occupied by the Israelis since 1967.

That land includes large swathes of East Jerusalem which Israel annexed in a move that has never received international approval. It is in East Jerusalem that the Palestinians want to create their future capital. Backing down to the U.S. demand to cancel the latest settlement expansion there could well place his governing coalition in real danger.

Refusing the U.S. demand to do so would jeopardize Israel's relationship with its most important strategic alliance.

Israel has won some support in the U.S. The powerful pro-Israel lobby AIPAC has sent a letter to members of Congress urging them to make statements on behalf of Israel and to contact Clinton to urge her to defuse the tension.