By Heather Sharp
BBC News, Jerusalem
The spotlight is on Mr Netanyahu after Mr Biden's visit
If the Israeli government thought it had weathered the storm over the Biden debacle as the US vice-president left the region, it was wrong.
The dressing-down from Israel's closest ally over the approval of plans for new homes in East Jerusalem during the US vice president's visit continued in full force over the weekend.
US Secretary of State Hillary Clinton said it was "insulting". An aide to US President Barack Obama, David Axelrod, dubbed it "an affront" and a "calculated" attempt to undermine the expected launch of indirect talks.
Israel's ambassador to the US has reportedly said relations between Israel and its closest ally are at a 35-year low.
To some in Israel, currently battling what many here see as a wave of international hostility evidenced by the Goldstone report accusing it of war crimes in Gaza, angering its strongest ally and greatest friend on the world stage is major worry.
Indeed, mismanaging the critical relationship in the late 1990s is one of the criticisms of Mr Netanyahu.
"Who's the superpower here?", Mrs Clinton's husband Bill is said to have asked, when Mr Netanyahu launched into a long political lecture during their first meeting.
But equally, there are those who think the Obama administration has pushed it too far.
Aipac, the powerful pro-Israel lobby group in the US, said recent US statements were a matter of "serious concern" - and the US should "take immediate steps to defuse the tension" - in other words, it should back off.
Most commentators here think it's a little overblown to say relations are at a three-decade low.
Hillary Clinton said Israel's announcement was "insulting"
US President Ronald Reagan's early years in office - during which Israel invaded Lebanon and bombed Iraq's nuclear reactor, and the US sold air defences to Saudi Arabia - were very rocky, they point out, as was 1991 when George Bush Senior's government denied loan guarantees to Israel - again over disagreements on settlement in the West Bank.
But, the crisis is still "deep and a cause for concern", says Oded Eran, head of the Institute for National Security Studies and a seasoned Israeli diplomat who has served as former deputy chief of Israel's embassy in the US.
One of the reasons, he says, is that it comes on top of background tension and real political differences between the two sides.
The tone of US-Israel ties has changed since early last year, when the Democrat Barack Obama replaced Republican George W Bush in the White House, and Mr Netanyahu's right-leaning coalition took over from the centrist Ehud Olmert.
Mr Obama visited Cairo early in his presidency, delivering a speech reaching out to Muslims around the world.
He began demanding that Israel completely halt all settlement activity in the occupied West Bank, including in East Jerusalem - something the previous administration had not insisted on.
A year later, Mr Obama still has not visited Jerusalem as president, even though he appeared to cave in and accepted only partial restrictions on settlement growth, which angered the Palestinians.
Meanwhile, it took him until June to persuade Mr Netanyahu to even back the principle of a Palestinian state, which has been the basis of negotiations for nearly two decades.
The Israeli leader issued the new demand that Palestinians recognise Israel as a Jewish state and indicated the future of Jerusalem, where Palestinians want their capital, was not up for negotiation.
The gap between Israel and the Palestinians seemed to yawn wider - although historically, Israeli leaders have tended to lay out tough "red lines" and later abandon them.
To Palestinians, the building approval was more evidence of what they had suspected all along - that Mr Netanyahu wanted the cover of some kind of process, but was far from serious about the concessions needed for actual peace.
The other factor, said Mr Eran, was the US frustration that its long, uphill struggle to bring the Palestinians to the negotiating table was at least partially at Mr Netanyahu's request. Because of this, "the [US's] frustration is almost double", he says.
Mr Eran does not believe the timing of the housing announcement was deliberate. He blames "balagan" - an Israeli slang word meaning "chaos" - in the government.
But Mrs Clinton made it clear she ultimately holds Mr Netanyahu responsible.
The Israeli media is now filled with speculation about how much the crisis will cost Mr Netanyahu - what he will have to do to convince the Palestinians he is serious about the indirect peace talks the announcement may have torpedoed.
It is widely seen as a political impossibility for any Israeli prime minister publicly to announce a suspension of building in East Jerusalem.
He is likely to face US pressure to quietly slow down at least some of it - perhaps even putting the 1,600 homes in question on ice - to claw back a piece of moral high ground.
But his statements on Monday suggest little willingness to do so. And his coalition contains right-wing parties for whom Jewish settlement of East Jerusalem is non-negotiable.
Israeli commentators are asking whether Mr Netanyahu will have to choose between his friends - his right-wing partners in government or the powerful ally that supports Israel with massive military aid and diplomatic backing on the world stage.
But the Obama administration, too, has a tricky course to steer.
With Republican gains likely in mid-term elections later this year, it knows the pro-Israel lobby on its own turf will be out in force. And at the moment, sections of it are angry.
POINTS OF TENSION IN JERUSALEM
1 Gilo: 850 homes approved for publication and planning objections in Nov 2009
2 Pisgat Zeev: 600 homes approved for publication and planning objections in Jan 2010
3 Sheikh Jarrah: Several Palestinian families evicted in past 18 months to make way for Jewish settlers after court ruled in ownership dispute
4 Ramat Shlomo: 1,600 homes approved for publication and planning objections in Mar 2010
5 Silwan: Demolition orders on 88 Palestinian homes built without difficult-to-get permits - Israel planning controversial renewal project
6. West Bank barrier: Making Palestinian movement between West Bank and Jerusalem harder - Israel says it's for security