Israelis and Palestinians have drifted further away from indirect talks after the special envoy of the United States to West Asia, George Mitchell decided to postpone his visit to the area and violence gripped parts of volatile East Jerusalem on Tuesday.

Mr. Mitchell was due to meet Israeli President Shimon Peres on Tuesday to discuss the start of indirect talks between the Palestinian and Israelis.

The postponement is yet another step marking the sudden downslide in diplomatic interaction between the Americans and the Israelis. The deterioration began during last week's visit to Israel and the West Bank by U.S. Vice-President Joe Biden. During the course of his visit, Israel announced its decision construct 1,600 homes in East Jerusalem, illegally occupied by Israel during the 1967 war.

Following this decision, which has been opposed by Washington, and the Palestinians, U.S. secretary of state Hillary Clinton said that Israeli move was “insulting” to peace efforts. According to the Israeli daily Haaretz, Ms. Clinton asked the Israeli Prime Minister Benjamin Netanyahu on Friday during the course of telephonic call that Israel should now make a “substantial gesture” towards Palestinians so that peace talks could be started. European Union foreign policy chief, Catherine Ashton, also said in Cairo that the Israeli decision had “endangered and undermined the tentative agreement to begin proximity talks”.

Notwithstanding the diplomatic row, Israeli Prime Minister Benjamin Netanyahu has not budged from his position of constructing new homes in occupied territory. In an address to Parliament on Monday, Mr. Netanyahu said that construction “will continue in Jerusalem as this has been the case for the past 42 years”.

Meanwhile, the American Israel Public Affairs Committee (AIPAC), a powerful U.S. based Israeli lobbying group, has gone on the offensive and asked the American administration “to take immediate steps to defuse the tension with the Jewish state”.

Amid escalation of the war of words, clashes have broken out in East Jerusalem over Israel's decision to restore the Hurva synagogue in the Jewish Quarter of Jerusalem's walled Old City.

The Palestinians have said the restoration endangered the revered Al-Aqsa mosque situated around 400 metres away.

Around 40 Palestinians were treated at East Jerusalem hospitals, and 31 were arrested as Palestinian youths and Israeli police clashed.

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