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The furor triggered by the announcement during US Vice President Joe Biden’s trip last week of plans to build 1,600 housing units in northeastern Jerusalem continued to reverberate over the weekend, with Secretary of State Hillary Clinton calling the move “insulting” and the new EU foreign policy chief hinting Europe could use trade ties as leverage against Israel.Prime Minister Binyamin Netanyahu, apparently taken aback by Clinton’s sharp criticism, called a meeting of his inner cabinet on Saturday night to discuss the continuing fallout and formulate a response.Following that meeting, Netanyahu put out a statement late Saturday night saying he would set up a committee headed by the director-general of his office, Eyal Gabai, to investigate the unfolding of events during the Biden visit and come up with regulations to prevent a similar occurrence in the future. The committee will also include the directors-general of the Interior Ministry, the Construction and Housing Ministry and the Jerusalem Municipality.Prior to the inner cabinet meeting, Netanyahu spoke to two of Israel’s closest allies in Europe, Italian Prime Minister Silvio Berlusconi and German Chancellor Angela Merkel, and said he realized that the announcement of the project during Biden’s visit was a mishap, but that Jerusalem had apologized to Biden and coordinated with him the statement on the matter released on Thursday morning by the Prime Minister’s Office.In addition, Netanyahu said, Israel was instituting a new mechanism to ensure that what happened last Tuesday, when an Interior Minister committee announced approval of the plans hours after a Biden-Netanyahu meeting and press conference, would not happen again.Still, the prime minister said, the policy on building Jewish neighborhoods in east Jerusalem is not new, and goes back to Levi Eshkol’s government immediately after the 1967 war.Netanyahu, according to government sources, said that his government had not radically increased housing in the Jewish neighborhoods of Jerusalem; that there was a wide consensus on the matter in Israel; and that construction in these neighborhoods has been done continuously by every government, both from the Right and the Left.In addition, he said, everyone – including the Palestinians – understood that neighborhoods like Gilo and Ramat Shlomo would remain part of Israel in any final agreement, and that this has been the case in all the various plans drawn up over the years.Clinton sharply admonished Netanyahu over the plans in a phone conversation on Friday. Both Clinton and Netanyahu are scheduled to address the annual American Israel Public Affairs Committee policy conference in Washington next Monday.Clinton’s call to Netanyahu came hours ahead of a condemnation of the housing plan issued by the Middle East Quartet composed of the US, UN, EU and Russia.“The Quartet has agreed to closely monitor developments in Jerusalem and to keep under consideration additional steps that may be required to address the situation on the ground,” read its statement, which also called for the resumption of peace talks. The Quartet said it would “take full stock” of the situation at its meeting in Moscow on Friday.The Quartet did not spell out what “additional steps” it had it mind, and government sources in Jerusalem said they did not immediately know what was being implied.In an interview with NBC, Clinton labeled the move “insulting not just to the vice president,” who was in Israel conveying his support to the Israeli people when the announcement came, but “an insult to the United States.”During her call to Netanyahu, she described the announcement as “a deeply negative signal about Israel’s approach to the bilateral relationship,” one that went against the spirit of Biden’s trip and “undermined trust and confidence in the peace process and in America’s interests,” according to State Department spokesman P.J. Crowley.Crowley said Clinton also stressed that “the Israeli government needed to demonstrate not just through words, but through specific actions, that they are committed to this relationship and to the peace process.”The Prime Minister’s Office provided no document about the conversation with Clinton.Biden wrapped up his four-day visit to Israel on Thursday, one in which he repeatedly stressed the strength of the alliance and the US commitment to Israel’s security. When news broke on Tuesday about the plans for building in Ramat Shlomo, he drafted a response in consultation with US President Barack Obama, using the harshest diplomatic language to condemn the move.The Palestinians have threatened to pull out of upcoming indirect talks with Israel if the housing plans aren’t shelved. Netanyahu’s office has said repeatedly that he did not have any intention of declaring a housing-start moratorium in east Jerusalem. US Mideast envoy George Mitchell is expected back in Israel on Tuesday to try to push the talks forward.A State Department official, speaking on condition of anonymity, wouldn’t say whether the US was looking for Israel to accede to the Palestinian demand, but said, “We’d like to see the Israeli government take specific steps to build confidence.”The Arab League, in a special meeting on Wednesday, withdrew its support for indirect talks that it had endorsed a week earlier. US Assistant Secretary for Near Eastern Affairs Jeffrey Feltman and Mitchell have been working the phones to keep Arab leaders on board.As part of their outreach, they spoke to the foreign ministers of Egypt, Jordan, Qatar and the United Arab Emirates, as well as to Arab League Secretary-General Amr Moussa and Palestinian Authority President Mahmoud Abbas.“We’ve been dealing with some obstacles this week, but we’re working with both sides to overcome those obstacles and keep the proximity talks moving forward,” the State Department official said. “We’re still moving forward with our plans.”Crowley noted on Thursday that the US had not received any official word from the Palestinians that they were pulling out of the talks, despite media speculation, and that Mitchell was still planning to head back to the region next week.Also on Friday, the State Department announced it was increasing assistance to Palestinians via the United Nations Relief and Works Agency by $55 million, bringing the total US aid for 2010 to $95m.During Clinton’s nearly 45-minute call with Netanyahu about the housing plan’s approval, she also told the prime minister that “she couldn’t understand how this happened, particularly in light of the United States’s strong commitment to Israel’s security,” according to Crowley.Netanyahu has insisted he was blindsided by the Interior Ministry committee vote and apologized for its timing, but he hasn’t walked away from the building program itself.Asked whether the secretary’s comment indicated the Americans didn’t believe Netanyahu’s explanation, Crowley said that “we accept what Prime Minister Netanyahu has said.”But, he added, “By the same token, he is the head of the Israeli government and ultimately is responsible for the actions of that government.”Meanwhile, the EU’s foreign policy chief, Catherine Ashton, hinted broadly on Saturday at a meeting with EU foreign minister in Cordoba that the EU could use the prospects of an upgrade with Israel as leverage.“We’re a huge supplier of aid and development in that region. We are strong with Israel in terms of trade and Israel wants to enhance its relationship with us, it wants to upgrade relations,” Reuters quoted her as saying. “Our ambition is that they know – because they do – that the solution lies in a negotiated settlement. Our view is that it needs to happen quickly and now, with the opportunity that that affords Israel... to be able to enhance the relationships it wants with us in any event for the future.”Ashton starts a four-day tour of the Middle East on Sunday, and is expected to arrive in Israel on Wednesday. She will also travel to Egypt, Syria, Lebanon, Jordan and the Gaza Strip, officials said on Friday.“What we have at the moment is a traditional relationship with Israel. They would like more,” Ashton was quoted as saying.Ashton said she hoped to visit Gaza, where the EU is a majorcontributor of aid. “I want to see for myself how we are spending ourmoney and what kind of impact it has on the ground,” she said.Annually, the EU and its 27 member states spend about €1 billion onhumanitarian and other aid for the Palestinians.Israel has said it will let Ashton, as well as UN Secretary-General BanKi-moon, who is scheduled to arrive two days later, into Gaza fromIsrael.