By MARK LAVIE, Associated Press Writer

Monday, March 15, 2010 at 8:18 a.m.

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Israeli border police officers stand guard outside Damascus gate, at Jerusalem's Old City, Monday, March 15, 2010. For a fourth straight day, Israel deployed hundreds of police around east Jerusalem's Old City, home to important Jewish, Muslim and Christian shrines, and restricted Palestinian access to the area in anticipation of possible unrest. Israel also maintained a closure that barred virtually all West Bank Palestinians from entering Israel, and some Palestinian shopkeepers shuttered their stores for several hours to protest Israel's actions in the city. Israeli officials said Monday that the U.S. is pressing Israel to scrap a contentious east Jerusalem building project whose approval has touched off the most serious diplomatic feud with Washington in years. (AP Photo/Tara Todras-Whitehill)

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Israeli police officers patrol outside the Damascus gate at Jerusalem's Old City, Monday, March 15, 2010. (AP Photo/Dan Balilty)

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Israelis police and border police officers pass by carpets displayed for sale, as they patrol in the streets of Jerusalem's Old City, Monday, March 15, 2010. (AP Photo/Dan Balilty)

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A Palestinian woman walks by Israeli police officers as they patrol outside the Damascus gate at Jerusalem's Old City, Monday, March 15, 2010. (AP Photo/Dan Balilty)

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Palestinians sit outside closed shops in east Jerusalem, near the Old City, Monday, March 15, 2010. For a fourth straight day, Israel deployed hundreds of police around east Jerusalem's Old City, home to important Jewish, Muslim and Christian shrines, and restricted Palestinian access to the area in anticipation of possible unrest. Israel also maintained a closure that barred virtually all West Bank Palestinians from entering Israel, and some Palestinian shopkeepers shuttered their stores for several hours to protest Israel's actions in the city. Israeli officials said Monday that the U.S. is pressing Israel to scrap a contentious east Jerusalem building project whose approval has touched off the most serious diplomatic feud with Washington in years.(AP Photo/Bernat Armangue)

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A Palestinian man walks past closed shops in east Jerusalem, near the Old City, Monday, March 15, 2010. For a fourth straight day, Israel deployed hundreds of police around east Jerusalem's Old City, home to important Jewish, Muslim and Christian shrines, and restricted Palestinian access to the area in anticipation of possible unrest. Israel also maintained a closure that barred virtually all West Bank Palestinians from entering Israel, and some Palestinian shopkeepers shuttered their stores for several hours to protest Israel's actions in the city. Israeli officials said Monday that the U.S. is pressing Israel to scrap a contentious east Jerusalem building project whose approval has touched off the most serious diplomatic feud with Washington in years. (AP Photo/Bernat Armangue)

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Palestinian women walk past Israeli border police officers standing guard outside Damascus gate of Jerusalem's Old City, Monday, March 15, 2010. For a fourth straight day, Israel deployed hundreds of police around east Jerusalem's Old City, home to important Jewish, Muslim and Christian shrines, and restricted Palestinian access to the area in anticipation of possible unrest. Israel also maintained a closure that barred virtually all West Bank Palestinians from entering Israel, and some Palestinian shopkeepers shuttered their stores for several hours to protest Israel's actions in the city. Israeli officials said Monday that the U.S. is pressing Israel to scrap a contentious east Jerusalem building project whose approval has touched off the most serious diplomatic feud with Washington in years. (AP Photo/Tara Todras-Whitehill)

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A Palestinian woman stands outside a closed shop in east Jerusalem, Monday, March 15, 2010. For a fourth straight day, Israel deployed hundreds of police around east Jerusalem's Old City, home to important Jewish, Muslim and Christian shrines, and restricted Palestinian access to the area in anticipation of possible unrest. Israel also maintained a closure that barred virtually all West Bank Palestinians from entering Israel, and some Palestinian shopkeepers shuttered their stores for several hours to protest Israel's actions in the city. Israeli officials said Monday that the U.S. is pressing Israel to scrap a contentious east Jerusalem building project whose approval has touched off the most serious diplomatic feud with Washington in years. (AP Photo/Tara Todras-Whitehill)

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A Palestinian girl blows up a balloon as an ultra-Orthodox Jewish man walks past a closed a shop in Jerusalem's Old City, Monday, March 15, 2010. For a fourth straight day, Israel deployed hundreds of police around east Jerusalem's Old City, home to important Jewish, Muslim and Christian shrines, and restricted Palestinian access to the area in anticipation of possible unrest. Israel also maintained a closure that barred virtually all West Bank Palestinians from entering Israel, and some Palestinian shopkeepers shuttered their stores for several hours to protest Israel's actions in the city. Israeli officials said Monday that the U.S. is pressing Israel to scrap a contentious east Jerusalem building project whose approval has touched off the most serious diplomatic feud with Washington in years. (AP Photo/Tara Todras-Whitehill)

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JERUSALEM — The Obama administration is demanding that Israel call off a contentious building project in east Jerusalem and make a public gesture toward the Palestinians to help defuse one of the worst U.S.-Israeli feuds in memory, officials on both sides said Monday.

But Prime Minister Benjamin Netanyahu showed little sign of yielding, saying Jewish construction in east Jerusalem "in no way" hurts Palestinians. A Jerusalem city spokesman suggested Jewish building there would continue.

Announcement of the plan to build 1,600 apartments for Jews in the Ramot Shlomo neighborhood came during Vice President Joe Biden's visit last week, embarrassing him and the Obama administration, angering Palestinians and endangering the start of indirect peace negotiations that are to be mediated by a U.S. envoy.

Adding to tensions was a ceremony Monday in the walled Old City in east Jerusalem, where Jews rededicated an ancient synagogue destroyed after the war that followed Israel's creation in 1948. Israeli police sent in reinforcements to prevent riots. The synagogue is in the Jewish Quarter, but Palestinians still saw the colorful celebration as an affront.

After a weekend of rare broadsides from top U.S. officials, including Secretary of State Hillary Rodham Clinton, American demands became clear Monday. The U.S. wants Israel to cancel the construction plan, U.S. and Israeli officials said, speaking on condition of anonymity because no announcement was made.

American officials said they were also insisting that Israel take significant steps to get peace talks back on track. These might include releasing Palestinian prisoners or turning over additional West Bank land to Palestinian control.

Washington, the officials added, also has demanded that Israel officially declare that talks with the Palestinians will deal with all the conflict's big issues, including final borders, the status of Jerusalem and the fate of Palestinian refugees who lost their homes during the war that followed Israel's 1948 creation.

But Netanyahu appeared unreceptive to the main demand, defending four decades of construction for Israelis in east Jerusalem.

"The building of those Jewish neighborhoods in no way hurt the Arabs of east Jerusalem and did not come at their expense," he told his parliament on Monday.

Netanyahu has apologized for the timing of the project's approval but has not said he will cancel it.

Palestinians say Jewish building in east Jerusalem, an area they hope to make their capital, eats up land they want for a future state, cuts off east Jerusalem from the rest of the West Bank and prevents the expansion of Arab neighborhoods. The Palestinians also point out that much of the land used for Jewish construction was expropriated from Arab owners.

Stephan Miller, a Jerusalem spokesman, said the city will not change its policies - meaning Jewish construction in the part of the city Palestinians claim will continue. "We are developing the entire city for the benefit of all residents," he said.

Most Israelis accept the Jewish neighborhoods in east Jerusalem as part of Israel, differentiating them from West Bank settlements, which many Israelis oppose. But since the world does not recognize Israel's annexation of east Jerusalem, the international legal status of the neighborhoods is the same as the settlements, which are considered illegal.

The unusually harsh U.S. criticism has undercut Netanyahu's efforts to play down the crisis. Israeli newspapers reported Monday that Israel's ambassador to Washington, Michael Oren, told Israeli diplomats in a conference call Saturday night that their country's relations with the U.S. haven't been this tense in decades.

Israel does not stand to benefit from antagonizing its most important ally, but Netanyahu has historically taken a hard line against territorial concessions to the Palestinians. A curb on east Jerusalem construction also could fracture his hawkish governing coalition.

Egyptian Foreign Minister Ahmed Aboul Gheit called for international moves against Israel, calling its Jerusalem policy "absurd, an evasion, maneuvering and an attempt to suffocate the Palestinians."

Jerusalem is the most explosive issue in the Israel-Palestinian conflict. Israel captured east Jerusalem in the 1967 Mideast war and annexed it, claiming the whole city as its capital. No other country has recognized the annexation.

At the emotional and religious center of the dispute is Jerusalem's Old City, with shrines holy to Jews, Christians and Muslims.

For a fourth straight day, Israel deployed hundreds of police around the area and restricted Palestinian access in anticipation of possible unrest. Israel also maintained a closure that barred virtually all West Bank Palestinians from entering Israel.

In the West Bank, Israeli troops dispersed 70 Palestinians hurling rocks and burning tires north of Jerusalem, the military said, wounding at least four people. In Egypt, meanwhile, thousands of students at six universities protested against Israel, shouting, "Arm us and send us to Al-Aqsa," Islam's third holiest site, also located in the Old City.

Today, about 180,000 Israelis live in east Jerusalem, in addition to nearly 300,000 Jewish settlers in the West Bank. Israel withdrew its 8,000 settlers from Gaza five years ago, though it continues to control that territory's borders, airspace and sea coast. Palestinians hope to establish a state in the West Bank, Gaza and east Jerusalem.

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Associated Press writers Sarah El Deeb in Cairo and Matthew Lee in Washington contributed to this report.