But Israeli Prime Minister Benjamin Netanyahu -- while he visits Washington this week for the American Israel Public Affairs Committee (AIPAC) three-day annual policy conference -- is now to meet President Barack Obama Tuesday.

The announcement ended speculation Obama might snub Netanyahu over his government's plans for new settler homes in east Jerusalem -- a move that prompted the Palestinians to freeze new peace talks.

A State Department official said US Secretary of State Hillary Clinton had asked her envoy George Mitchell, who was in Jerusalem on Sunday, to pass along the invitation from Obama to Netanyahu.

Clinton will meet Netanyahu at the State Department following her speech to AIPAC on Monday morning, the official told reporters on the condition of anonymity. Netanyahu will speak to the pro-Israel lobby in the evening.

Robert Satloff, the executive director of the Washington Institute for Near East Policy think tank, told AIPAC that the crisis between the two allies is "serious" and "real" even if both sides now are trying to defuse it.

"When it is resolved -- and I think it is in the process of being resolved -- it will leave scars between the two sides, I think at the very highest levels," said Satloff.

Analysts like Satloff warn the settlements row might complicate a US-led drive for tougher UN sanctions against Iran over its uranium enrichment work, which the United States and Israel fear masks a bid to build an atomic bomb.

Israel has threatened preemptive military strikes against Iran.

"I think that the impact of this crisis is to hasten Iranian efforts to achieve a nuclear weapons capability," Satloff warned.

"And ultimately, because there are scars now in the US-Israeli strategic relationship," the impact may be "even to hasten the clock on Israeli preventive action against that Iranian nuclear capability," he said.

Evan Bayh, a Democratic senator who has pushed for tough US sanctions against Iran, warned that Tehran is making a "miscalculation" if it views the "rhetorical spat... as a lack of resolve" by Washington to halt Iran's nuclear drive.

Bayh said "aggressive sanctions" were needed to show US allies that all peaceful options to make Iran change course were exhausted, and because there was a slight chance they could work.

Sounding more pessimistic than optimistic, however, he said "now we have to turn towards perhaps contemplating the final option -- the use of force -- to prevent them from getting a nuclear weapon."

His remarks triggered applause from the thousands of participants.

In the run-up to the policy conference, AIPAC had urged the Obama administration to defuse tension over plans for 1,600 new Jewish settler homes in east Jerusalem.

But in the preceding days, Clinton demanded and received a response from Netanyahu about US concerns over the impact of the settlements.

Sunday, Netanyahu vowed there would be no halt to settlement building in east Jerusalem but, in an apparent concession to the US, said Israel was willing to widen the scope of planned indirect talks with the Palestinians.

His comments on settlements were quickly denounced by Palestinian president Mahmud Abbas as unhelpful to attempts to restart talks. Abbas also condemned the recent killing of four Palestinians in the West Bank by Israeli forces.

Small groups of protesters, both non-Jews and Jews, stood outside the convention center protesting Israeli policies in the Palestinian territories.

earlier related report
Tension remains high as diplomats talk Mideast peace
Jerusalem (AFP) March 19, 2010 - Israeli air strikes over the Gaza Strip in retaliation for a fatal rocket attack lent a fresh sense of urgency to international Middle East talks held in Moscow on Friday.

Tension was also high in Jerusalem, where thousands of police braced for the possibility of new clashes in and around the Old City and authorities again imposed restrictions on the main weekly prayers at the flashpoint Al-Aqsa mosque compound.

In Gaza, Israeli aircraft conducted pre-dawn strikes which the military said targeted six "terror sites," including a weapons manufacturing facility and two tunnels designed to infiltrate Israel in order to carry out attacks.

A Thai labourer working in an Israeli village near the border was killed on Thursday in the first fatal rocket strike from Gaza since the January 2009 end of Israel's devastating 22-day offensive on the Hamas-run Palestinian enclave.

The Al-Qaeda-inspired Ansar al-Sunna Brigade claimed responsibility for the rocket attack, linking it to clashes between Palestinian demonstrators and Israeli police in Jerusalem earlier in the week.

UN Secretary-General Ban Ki-moon, who is due to visit the region, including Gaza, over the weekend, condemned the killing, saying "such acts of terror" are unacceptable and contrary to international law.

EU foreign affairs chief Catherine Ashton told journalists she was "extremely shocked" by the rocket attack which took place while she was visiting the impoverished Gaza Strip.

Both Ashton and Ban were taking part in Friday's meeting of the international Quartet for the Middle East in Moscow, together with US Secretary of State Hillary Clinton and Russian Foreign Minister Sergei Lavrov.

The increased diplomatic activity comes amid heightened religious and political tension that saw dozens injured in clashes between Palestinians and police in east Jerusalem on Tuesday.

As a result, an Israeli police spokesman said thousands of officers were being kept on alert on Friday and that men under the age of 50 were barred from entering the Al-Aqsa mosque compound.

An already charged atmosphere intensified after a rebuilt 17th-century synagogue was opened this week in the Jewish quarter of the Old City, a few hundred metres (yards) from the compound, which is holy to both Muslims and Jews.

Tensions have also flared between staunch allies Israel and the United States over US complaints about Israeli plans to build 1,600 homes for Jewish settlers in annexed Arab east Jerusalem.

Prime Minister Benjamin Netanyahu's office said late Thursday that he had spoken to Clinton over the telephone about "mutual confidence-building measures" that could be carried out by Israel and the Palestinians.

His office gave no details of the proposed measures or whether Netanyahu had answered US concerns.

What particularly infuriated Washington was the timing of the settlement announcement, which came as Vice President Joe Biden was in Jerusalem to promote a hard-won deal for US-brokered indirect peace negotiations.

The Palestinians have refused to return to direct talks until Israel freezes all settlement activity in the occupied West Bank, including east Jerusalem, and the settlement announcement threatened to scupper the US-negotiated compromise.

Despite the bitter diplomatic row, US President Barack Obama has insisted there is no crisis.

And a sweeping majority of Israelis -- 69 percent -- believe Obama is being "friendly and fair" towards Israel, according to an opinion poll published by the Haaretz newspaper on Friday.

Forty-eight percent of respondents believe settlement construction must continue in east Jerusalem even at the expense of a rift with the US administration.

But 41 percent want Israel to accept a US demand to freeze settlement construction in the Holy City pending the conclusion of proposed new peace talks.

The settlement issue and the status of Jerusalem are among the thorniest issues in the peace process.

Israel sees Jerusalem as its eternal, indivisible capital while Palestinians see east Jerusalem as the capital of their promised state.

US Middle East envoy George Mitchell, who brokered the now uncertain deal for indirect talks, is due back in the region on Sunday, a senior Palestinian official said.

He is expected to meet Netanyahu before the Israeli premier leaves for a US visit that evening.

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