JERUSALEM: Israel's prime minister tried to play down a serious diplomatic dispute with the United States on Sunday, urging calm after another stern rebuke from Washington over plans to build 1,600 new apartments for Jews in contested east Jerusalem.

Israel's already strained relationship with the U.S. hit a new low last week when Israel announced the construction plans during a visit by Vice President Joe Biden. The timing of the announcement deeply embarrassed the Obama administration and put plans for indirect peace talks with the Palestinians in jeopardy.

The U.S. responded with repeated condemnations, including a lecture from Secretary of State Hillary Rodham Clinton over the weekend.

Netanyahu has been trying to dispel the impression that relations with the U.S. have degenerated into a crisis. His attempt Sunday to ease concerns were his first public comments since the feud erupted.

"We opened the newspapers this morning and read all kinds of commentary and assumptions regarding the crisis with the U.S. I recommend not to get carried away and to calm down," Netanyahu told his Cabinet.

Netanyahu, however, gave no indication that he would cancel the east Jerusalem construction plan, despite warnings from Washington that it could undermine the negotiating climate as indirect peace talks between Israel and the Palestinians are about to begin under U.S. mediation.

"Israel and the U.S. have mutual interests," Netanyahu told the Cabinet, then pointedly added, "but we will act according to the vital interests of the state of Israel."

The future of east Jerusalem is the most explosive issue in the Israeli-Palestinian conflict. Israel captured east Jerusalem in the 1967 Mideast war and considers the entire city to be its capital. The Palestinians seek east Jerusalem — home to sensitive Jewish and Muslim holy sites — as their future capital.

After working for more than a year to get peace talks back on track, the U.S. viewed the Israeli construction plan as a provocative move that could derail the negotiations before they even get under way.

Biden condemned the construction plan, using exceptionally harsh diplomatic language. But at the end of his visit Thursday, he toned down that criticism in an apparent effort to keep the feud from escalating.

Clinton shattered the newfound calm a day later by calling the new housing plan a "deeply negative signal" for Mideast peacemaking and ties with the U.S.

She spoke to Netanyahu by phone for 43 minutes to vent Washington's frustration with the announcement and its timing.

"The announcement of the settlements on the very day that the vice president was there was insulting," Clinton told CNN on Friday. "It was just really a very unfortunate and difficult moment for everyone, the U.S., our vice president, who had gone to reassert America's strong support for Israeli security, and I regret deeply that that occurred and made that view known."