JERUSALEM (Reuters) - U.S. Secretary of State Hillary Clinton told Israeli Prime Minister Benjamin Netanyahu on Friday he must work to repair relations with Washington after a debacle over Jewish settlements that has undermined U.S. efforts to mediate new peace talks with the Palestinians.
Clinton's blunt language betrayed American frustration after a visit by Vice President Joe Biden was overshadowed by Israel's approval of new Jewish building on occupied land.
She reminded Netanyahu of the commitments the U.S. makes to protect Israel from hostile neighbors, her spokesman said.
On a day when Israeli forces sealed off the West Bank and deployed riot squads around Jerusalem's holy sites to contain Palestinian anger during weekly Muslim prayers, Clinton called the latest settlement approval a "deeply negative signal about Israel's approach to the bilateral relationship...and had undermined trust and confidence in the peace process".
Biden's visit this week had been billed as reassuring the Jewish state that the administration of Barack Obama would deal with the threat Israel perceives from Iran's nuclear program -- as well as setting the presidential seal on a deal to end a 15-month hiatus in Israeli-Palestinian peace talks.
Instead, hours after Biden spoke of Obama's commitment to Israel's security in the face of threats from Tehran, Israel's Interior Ministry gave approval for 1,600 new homes for Jewish settlers in a part of the West Bank annexed to Jerusalem.
Speaking to reporters in Washington, Clinton's spokesman P.J. Crowley stressed the disconnect: "The secretary said she could not understand how this happened, particularly in light of the United States' strong commitment to Israel's security.
"She made clear that the Israeli government needed to demonstrate not just through words but through specific actions that they are committed to this relationship and to the peace process," Crowley said, describing Clinton as "frustrated".
There was no immediate reaction from the Israeli government.
Since taking office at the head of a right-leaning coalition a year ago, Netanyahu has had a fraught relationship with Obama and his administration, not least as a result of the premier's public skepticism about the early prospects for establishing a Palestinian state in the West Bank and Hamas-ruled Gaza Strip.
Netanyahu's domestic critics, particularly to his left, had already voiced alarm that his coalition's dependence on settler groups was causing him to risk damaging the U.S. partnership on which Israel's security and economy partly depend.
In Maariv newspaper, prominent columnist Ben Caspit warned: "High-ranking American officials said this week Israel was not behaving like an ally of the United States. There is no worse thing to say at such a critical time, when Iran is charging into the last stretch on its way to the nuclear bomb."
Netanyahu, whose fluent English and American education help make him a rather popular Israeli leader to many Americans, particularly among Obama's right-wing opponents in Congress, is seeking to balance close U.S. security ties with demands from supporters to keep expanding settlements in the West Bank.
Obama is seeking better U.S. relations with the Arab world, which backs the Palestinians, as he seeks to bolster alliances in the oil-producing hub, notably against Iran as it develops nuclear technology and against Islamist enemies like al Qaeda.
Breaking the stalemate on a Palestinian state after 20 years of talking might help challenge Arab perceptions that Washington is in thrall to Israel, some analysts believe, though Israel's strong support in Congress tends to limit U.S. pressure on it.
"Perhaps America will present Israel with a real choice and with consequences for recalcitrance," said Daniel Levy of the New America Foundation. "Thus far, that has not been case."
Palestinian President Mahmoud Abbas has demanded Israel halt all settlement building and dismissed a partial, 10-month freeze declared by Netanyahu in November as inadequate. But this month Abbas agreed to end a boycott of negotiations with Israel by taking part in "proximity talks" through U.S. mediators.
He was deeply disappointed last year that Obama and Clinton failed to pressure Netanyahu into a full settlement freeze.
His chief negotiator Saeb Erekat warned in a statement on Friday, however, that the negotiations may be thwarted unless Israel reverses this week's approval of the 1,600 homes.
Obama's Middle East envoy George Mitchell is working to salvage the process. Erekat said the Palestinians would listen to him when Mitchell returns to the region early next week.
The Quartet of powers sponsoring peace efforts -- Russia, the European Union, United Nations and United States -- issued a statement calling for an "immediate resumption of dialogue".
In Jerusalem, Israeli police said plans to keep Palestinians away from the flashpoint al-Aqsa mosque worked in preventing a repeat of clashes that left dozens injured the previous Friday.
The Arab League has said talks are on hold. Its endorsement last week gave Abbas important backing against domestic critics like Islamist Hamas who accuse him of selling out to Israel.
But even if talks do go ahead, the two sides remain far apart even on what subjects they might discuss and few believe any kind of breakthrough to end the conflict is at hand.
Additional reporting by Andrew Quinn in Washington, Joseph Nasr, Ori Lewis and Darren Whiteside in Jerusalem, Adam Entous in Amman, Nidal al-Mughrabi in Gaza, Ali Sawafta in Ramallah and Dmitry Solovyov in Moscow, editing by Diana Abdallah