Jerusalem ? 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, American and Israeli officials said Monday.

Israeli Prime Minister Benjamin Netanyahu, however, gave no indication he intended to cancel construction of the 1,600 housing units, despite condemnation from a string of U.S. officials. Instead, Netanyahu offered a defense of his country’s building in the city’s eastern sector, which the Palestinians want as their future capital, and noted that Israel has been building there for more than 40 years.

“The building of those Jewish neighborhoods in no way hurt the Arabs of east Jerusalem and did not come at their expense,” he said in parliament Monday.

Palestinians say Jewish building in east Jerusalem harms them in various ways. It eats up land they want for a future state, cuts off east Jerusalem from the rest off the West Bank and prevents the expansion of Arab neighborhoods, they say. The Palestinians also point out that much of the land used for Jewish construction was expropriated from Arab owners.