Israel announced the construction of 1,600 homes in east Jerusalem yesterday, drawing criticism from Joe Biden, the US Vice-President, who is in the country trying to kick-start the peace process.

Mr Biden had hoped to reinforce progress made by the US Middle East envoy, George Mitchell, in reviving a dialogue between Palestinians and Israelis after a year of acrimony. On Monday he managed to cajole both sides to the negotiating table, initiating indirect talks between them.

Last night the White House struggled to couch its anger at the latest Israeli move in diplomatic language. “The substance and timing of the announcement, particularly with the launching of proximity talks, is precisely the kind of step that undermines the trust we need right now,” Mr Biden fumed.

The Palestinian Authority spokesman Nabil Abu Rudeina said: “This is a dangerous decision and will hinder the negotiations. We consider the decision to build in east Jerusalem to be a judgment that the American efforts have failed before the indirect negotiations have begun.” The announcement came a day after Israel said that it was building 112 apartments on another West Bank settlement.

The Israeli and Palestinian press have criticised the US talks plan as a step backwards. It is the first time in 16 years that the two parties will not conduct negotiations face-to-face.

Yet in a meeting with the Israeli Prime Minister, Binyamin Netanyahu, yesterday, Mr Biden said he was optimistic that the initiative would begin a process by which a final peace deal could be reached.

“We hope that these talks will lead, and they must lead eventually, to negotiations and direct discussions between the parties,” he said.

Previous efforts at direct talks have failed because Israel refused to meet the Palestinians’ key requirement — a freeze on all building in the West Bank settlements.

The Palestinians accused Israel of timing its announcement of the 1,600 new units in the Ramat Shlomo settlement so as to scupper the talks. A Palestinian Authority official noted that since Mr Netanyahu took office, every visit by a US official or to the US had been met with an announcement of settlement expansion. “One cannot help but conclude that Israel is sending a message here. They are telling America: come talk, but we will do things our way. We will continue to build and we will do it in your face,” he said.

Mr Biden will meet Palestinian Authority officials in Ramallah today. An aide to President Abbas said that they would press Mr Biden on the Israeli settlement expansion.

At the start of his trip Mr Biden said that his visit was meant to highlight the bond between Israel and the US, especially on issues of security.