Israeli officials said on 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.

Tensions in the city at the centre of the spat were high, with police out in large numbers in Jerusalem’s volatile Old City in expectation of renewed clashes.

Top U.S. officials have lined up in recent days to condemn the Israeli plan to build 1,600 apartments in east Jerusalem, the sector of the city that the Palestinians claim for their future capital.

The project was announced during Vice-President Joe Biden’s visit to the region last week, badly embarrassing the U.S. and complicating its efforts to restart Israeli—Palestinian peacemaking.

U.S. officials have not disclosed what steps they want Israel to take to defuse the crisis, and Israeli government spokesman Mark Regev, refused to comment on Monday. But Israeli officials, speaking on condition of anonymity because no official decision has been made public, said Washington wants the construction project cancelled.

Although Israeli Prime Minister Benjamin Netanyahu, has apologized for the timing of the project’s approval, he has not said he will cancel it.

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

The Israeli officials said the U.S. also wants Israel to make a significant confidence—building gesture towards the Palestinians, including possibly releasing hundreds of Palestinian prisoners or turning over additional areas of the West Bank to Palestinian control.

Washington, they 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 around Israel’s 1948 creation.

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

The Foreign Ministry had no immediate comment.

U.S. Mideast envoy George Mitchell, is expected in the region this week to try to salvage peace efforts.

East Jerusalem has been perhaps the most intractable issue dividing Israelis and Palestinians. Israel annexed the territory after capturing it in the 1967 Mideast war, but the Palestinians and the international community have not recognized that move. The renewed settlement dispute has further fuelled frictions in the city.

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.

Police spokesman Micky Rosenfeld, said access to the city’s most sensitive holy site - the compound known to Jews as the Temple Mount and to Muslims as the Noble Sanctuary - was restricted because police “have received clear indications that Palestinians are intending to cause disturbances.”

The compound is home to the Al—Aqsa Mosque, Islam’s third—holiest shrine. It is Judaism’s holiest site because two biblical Jewish temples once stood there.

Not far from the compound, inside the Old City’s Jewish Quarter, Jewish residents were to rededicate a historic synagogue that had been destroyed twice, most recently in 1948 by the Jordanian army, and was recently rebuilt.

Some Palestinians charged that Jewish extremists were planning to use the rededication to try to rebuild the Jewish Third Temple on the plateau. Similar rumours in the past have brought out Palestinian protesters and sparked violence.

The Palestinian Authority’s minister of religious affairs, Jamal Bawatneh, condemned the synagogue rededication as “an attack on the rights of Palestinians.”

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