Israel moves to ease diplomatic dispute with U.S.

Israel's Prime Minister Benjamin Netanyahu attends a joint news conference with Finance Minister Yuval Steinitz and Governor of the Bank of Israel Stanley Fischer (both not pictured) at parliament in Jerusalem March 17, 2010.

JERUSALEM (Reuters) - Israeli Prime Minister Benjamin Netanyahu praised Barack Obama on Wednesday after a disagreement over Jewish settlements, to distance himself from his brother-in-law calling the U.S. president an anti-Semite.

The rhetoric highlighted a week-long spat Israel touched off with the Obama administration when it announced during a visit by U.S. Vice President Joe Biden that it planned to build 1,600 more homes for Jews near East Jerusalem, angering Palestinians.

During what is seen as one of the most tense periods in U.S.-Israeli ties, Netanyahu had to distance himself from comments by his brother-in-law, an ultranationalist, who called the president an anti-Semite in a radio interview.

"I have a deep appreciation for President Obama's commitment to Israel's security, which he has expressed many times," Netanyahu said in a statement, and also disavowed himself from all comments made by Hagai Ben-Artzi, his wife's brother.

Despite the rebuke, Ben-Artzi repeated the insult in an interview with Israel's Channel 2 television, telling a reporter who asked if he really thought the U.S. leader was an anti-Semite: "I have thought this for a long time."

"I had no doubt someone who could sit 20 years with an anti-Semitic minister, who preaches the destruction of Israel, had absorbed something," Ben-Artzi said of Reverend Jeremiah Wright once a mentor of Obama's, who Obama has since denounced.

"I had expected an outburst (from Obama) and here it was," Ben-Artzi said of Washington's objections to Israel's plans for new housing in territory it captured in a 1967 war and annexed.

Israel regards all of Jerusalem, including the eastern sector captured 43 years ago, as its capital. Palestinians want East Jerusalem to be the capital of the state they hope to establish in the West Bank and Gaza Strip.

U.S. Secretary of State Hillary Clinton has called Israel's settlement announcement an insult and pressed it to take steps to show it was serious about new peace moves.

"UNSHAKEABLE BOND"

Clinton took a less confrontational tone on Tuesday, telling reporters Washington has "an absolute commitment to Israel's security" and spoke of "a close unshakeable bond."

But State Department officials said Wednesday Netanyahu had not telephoned Clinton with a response before she departed for Moscow for a meeting of the Quartet of Middle East peace mediators on Thursday and Friday.

"We're still looking forward to a response. It hasn't happened yet," State Department spokesman Mark Toner said.

Toner said the United States had not set a deadline for an Israeli reply, but expected Clinton to receive it soon.

Israeli media reports said Clinton wanted Israel to shelve the housing plan and agree to discuss core statehood issues with the Palestinians once indirect peace talks began. Netanyahu has said he would not curb building for Jews anywhere in Jerusalem.

U.S. Middle East peace envoy George Mitchell has put off plans to return to the region, pending the outcome of the meeting of the Quartet, which comprises the United States, European Union, United Nations and Russia.

The EU's foreign policy chief, Catherine Ashton, making a first trip to Israel since being named, said the Quartet would seek ways to revive stalled Israeli-Palestinian talks.

"The sooner we get to the talks the better," Ashton said.

Israeli Foreign Minister Avigdor Lieberman said at a joint news conference with Ashton Israel had "no interest in confrontation" but it was "unreasonable" to bar it from building homes in East Jerusalem.

Abbas, after agreeing to hold indirect U.S.-mediated talks with Israel, has toughened his stance since the Israeli flareup with Washington.

"We demand the fulfillment of commitments before going to indirect negotiations," Abbas said on Wednesday.

Israeli forces confronted Palestinian protesters for a second day, as hundreds of demonstrators threw stones in two West Bank towns. Firebombs were thrown at least two Israeli vehicles in the West Bank, a military spokesman said.

The diplomatic flareup has raised concern in Israel that security cooperation with the United States over any future nuclear-armed Iran could be jeopardized.

In a sign Israel was keen to lower the volume of the spat with Washington, Israel's U.S. envoy Michael Oren denied media reports on Monday he had said the two countries faced a "crisis of historic proportions."

"I was flagrantly misquoted," Oren said in a statement, adding he was "confident that we will overcome these differences shortly."

(Additional reporting by Andrew Quinn, Steve Holland, Arshad Mohammed and Ross Colvin in Washington, Tom Perry in Ramallah and Allyn Fisher-Ilan; Editing by Alison Williams)