WASHINGTON -- The U.S. sharply criticized Israel's decision to move ahead with a building expansion in East Jerusalem, underscoring the rift between the Obama administration and Israeli Prime Minister Benjamin Netanyahu over how to push forward the stalled Middle East peace process.

The U.S. has unsuccessfully lobbied Mr. Netanyahu over the past nine months to agree to a total Israeli construction freeze in the West Bank and East Jerusalem, to underpin negotiations aimed at creating an independent Palestinian state.

Mr. Netanyahu has committed to significantly limiting new settlement activity in the West Bank but has refused any curtailment of building in East Jerusalem, which Israel annexed following the 1967 Arab-Israeli war.

U.S. officials said Tuesday that Israel's plans to build 900 new housing units in a disputed East Jerusalem neighborhood could further damage Washington's efforts to revive the peace process.

"At a time when we are working to relaunch negotiations, these actions make it more difficult for our efforts to succeed," White House spokesman Robert Gibbs said.