Obama says Israel home plans not helpful for peace

President Barack Obama listens to his introduction as he arrives to deliver remarks on health insurance reform at Walter F. Ehrnfelt Recreation and Senior Center in Strongsville, Ohio, March 15, 2010.

WASHINGTON (Reuters) - President Barack Obama said on Wednesday Israeli plans to build more homes near East Jerusalem were not helpful for the Middle East peace process, but he said the issue had not led to a crisis with one of the United States' closest allies.

"Israel's one of our closest allies, and we and the Israeli people have a special bond that's not going to go away," Obama said in an interview on Fox News Channel's Special Report with Bret Baier.

"But friends are going to disagree sometimes," Obama said.

Israel touched off a spat with the Obama administration last week 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.

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.

Obama said in the interview that he had sent Biden to the region at a moment when the United States was trying to restart talks between Israelis and the Palestinians.

"I specifically sent Vice President Biden to Israel to send a message of support and reassurance about my belief that Israel's security is sacrosanct and that we have a host of shared interests," Obama said.

"There is a disagreement in terms of how we can move this peace process forward," he added.

Israel's Interior Ministry gave approval for the 1,600 new homes hours after Biden spoke about Obama's commitment to Israel's security in the face of what both countries see as threats from Iran.

"The actions that were taken by the interior minister in Israel weren't helpful to that process. Prime Minister (Benjamin) Netanyahu acknowledged as much and apologized for it," Obama said.

"What we need right now is both sides to recognize that it is in their interests to move this peace process forward," Obama said.

(Reporting by Jeff Mason and Deborah Charles; editing by Mohammad Zargham)