The move came following a similar decision by the Arab League as international pressure mounted on Israel after the project was announced during a visit by US Vice President Joe Biden to promote the talks.

Palestinian president Mahmud Abbas said he could not go through with the indirect talks that the Palestinians had reluctantly agreed to on March 7 unless the new housing project was cancelled, his top negotiator said.

”I am waiting for (US Middle East envoy George) Mitchell to come back next week to give us the answer that the decision has been cancelled,” Abbas told Arab League Secretary General Amr Mussa, according to Saeb Erakat.

The Arab League had issued a statement overnight following an emergency meeting of Arab ambassadors saying “the Israeli measures must be stopped before any discussion on a resumption of talks, direct or indirect.”

In Washington, State Department spokesman Philip Crowley confirmed on March 10 that the US had raised the issue with Israeli officials.

Crowley, who considered it unusual for Washington to condemn such a close ally, told reporters: “We are talking to the government and trying to understand what happened and why.”

The news had already sparked a strong condemnation from Biden, who met Abbas and other senior Palestinian leaders in the West Bank on March 10.