Jerusalem (CNN) -- Israeli Prime Minister Benjamin Netanyahu has set up a team to investigate why officials announced new settlement construction in disputed territory while U.S. Vice President Joe Biden was visiting the country.

Netanyahu announced the probe Sunday after a meeting with ministers the day before.

"There was an unfortunate incident that was unintentional, and it was hurtful and surely should not have occurred," Netanyahu said Sunday morning. "We appointed a team that will find the chain of events in order to ensure procedures that make sure incidents like this do not happen in the future."

The Israeli announcement of construction in East Jerusalem came during Biden's visit last week.

It complicated U.S. efforts to set up so-called proximity talks between the Israelis and Palestinians, the latest attempt to nudge the two sides back toward talking directly.

U.S. Secretary of State Hillary Clinton called the timing of the announcement "insulting" to the United States.

The construction, announced Tuesday, will be in the Ramat Shlomo neighborhood, located in largely Arab East Jerusalem. Planning of the building project has taken several years and final approval won't come for more than a year, Netanyahu's office said, and actual construction is likely to take several more years.

U.S. President Barack Obama's top adviser echoed Clinton's comments on the issue, calling the Israeli move an "affront" and an "insult."

"What it did was it made more difficult a very difficult process," David Axelrod told ABC's "This Week." "We've just gotten proximity, so-called proximity talks, going between the Palestinians and the Israelis, and this seemed calculated to undermine that."

Axelrod said Israel is a "strong and special ally" and for that reason, "this was not the right way to behave."

White House Press Secretary Robert Gibbs called Netanyahu's expression of regret "a good start" in resolving the issue.

"I think what would be an even better start is coming to the table with constructive ideas for constructive and trustful dialogue about moving the peace process forward," Gibbs told "Fox News Sunday."

Gibbs added, "There's no doubt that that was not a bright spot for the Israeli government."

Biden arrived in Israel on Monday, meeting first with Israeli President Shimon Peres at his official residence in Jerusalem and then with Prime Minister Benjamin Netanyahu.

Biden emphasized the close relationship between the United States and Israel as he met with Israeli leaders Tuesday, a visit that also touched on relations with the Palestinians and Iran.

However, later Tuesday, after getting word of the settlement announcement, Biden said the United States condemned Israel's decision to build the 1,600 housing units in the Jerusalem neighborhood, calling it "a step that undermines the trust we need right now."

The Israeli Interior Ministry said the construction plan was approved by a district committee, and the public can express objections to it over the next 60 days.

"I mean it was just really a very unfortunate and difficult moment for everyone -- the United States, our vice president who had gone to reassert our strong support for Israeli security -- and I regret deeply that that occurred and made that known," Clinton said Friday.

Clinton added that she has no reason to believe that Netanyahu knew about the announcement during Biden's visit, but added, "He is the prime minister. Like the president or secretary of state ... ultimately, you are responsible."

The controversy over Israel's announcement came just a day after George Mitchell, the Obama administration's special envoy for Middle East peace, announced that Israeli and Palestinian leaders had accepted indirect talks.

Mitchell said Monday that the two sides, with him acting as intermediary, had begun to discuss the "structure and scope" of the talks.

"I will return to the region next week to continue our discussions," Mitchell said. "As we've said many times, we hope that these will lead to direct negotiations as soon as possible."

Negotiations between Palestinians and Israelis have been stalled for more than a year, despite the Obama administration's attempt to move toward a resolution of the decades-old Israeli-Palestinian conflict.

Under current agreements between Israel and the Palestinian Authority, Israel maintains full control over the West Bank and its borders, while the Palestinian government oversees administration of major population centers.

CNN's Shira Medding contributed to this report.