Benjamin Netanyahu: 'Jerusalem is not a settlement; it's our capital'
Prime Minister Benjamin Netanyahu has asserted Israel's "right to build" in Jerusalem, following a row with the US over plans for new homes in the city.
"Jerusalem is not a settlement, it's our capital," he said in Washington.
But Mr Netanyahu did not mention the decision to expand the East Jerusalem settlement of Ramat Shlomo in a speech to the pro-Israel lobby group, Aipac.
Earlier, US Secretary of State Hillary Clinton told the meeting Israel had to make "difficult" choices for peace.
She said the continued expansion of Jewish settlements in Palestinian occupied territory undermined the US role in the peace process.
The Palestinian Authority is furious at Israel's insistence on building on occupied territory. It sees it as a serious stumbling block to the resumption of talks, which have been stalled for more than a year.
Some 500,000 Jews live in more than 100 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem. They are considered illegal under international law, which Israel disputes.
Call to Abbas
In his speech to a convention of the influential American Israel Public Affairs Committee (Aipac) on Monday evening, Mr Netanyahu said that "the Jewish people were building Jerusalem 3,000 years ago and the Jewish people are building it today".
New construction in east Jerusalem or the West Bank undermines mutual trust and endangers the proximity talks that are the first step toward the full negotiations that both sides want and need
Settlements in occupied East Jerusalem were an "inextricable" part of the city, he said, and would remain part of Israel under any peace agreement.
"Therefore, building in them in no way precludes the possibility of a two-state solution."
He said Israel wanted Palestinians to be "our neighbours, living freely" and called on Palestinian Authority President Mahmoud Abbas to "come and negotiate peace".
Mr Netanyahu added that while the US could help resolve both sides' problems, peace could not be imposed from the outside.
Speaking just hours earlier to the same audience, Mrs Clinton urged Mr Netanyahu to extend Israel's suspension of new building in the West Bank to include East Jerusalem.
Jeremy Bowen, BBC Middle East editor, Washington
Prime Minister Netanyahu made a tough speech, reasserting what he believes to be Israel's right to build wherever it wants in Jerusalem.
Israel's latest building plans in occupied East Jerusalem have been condemned by the Obama administration and are at the heart of the current crisis in relations between the two countries.
Both sides have been trying to take the heat of the dispute, re-emphasising their friendship.
Perhaps Mr Netanyahu has given some kind of private assurance to the Americans that he won't surprise them with any more building projects.
But his speech shows that on the fundamentals of the issue the US and Israel are far apart.
She said the continued expansion of Jewish settlements undermined "mutual trust and endangers the proximity talks that are the first step toward the full negotiations that both sides want and need".
"It exposes daylight between Israel and the United States that others in the region hope to exploit," she added.
Last week, the Israeli prime minister proposed a series of "trust-building measures" that he said represented "a real effort" to aid US peace efforts.
Although details have not yet been made public, Israeli officials said these included an agreement to discuss all outstanding issues in the indirect "proximity talks" being mediated by US special envoy George Mitchell.
In Monday's speech, Mr Netanyahu also warned that "Iran's brazen bid to develop nuclear weapons... is the threat to the entire world".
He urged the world community to act "swiftly" to "swart this danger".
Iran insists its nuclear programme is solely for civilian purposes.
Mr Netanyahu is scheduled to meet President Obama later on Tuesday.
Meanwhile, at least three people were injured in an Israeli air strike overnight in the east of Gaza City, Palestinian officials said.
Israel said the air strike in Gaza was retaliation for rocket attacks
The Israeli military said its aircraft had targeted a weapons storage facility in retaliation for Palestinian rocket attacks since Thursday, one killing a Thai farm worker.
In a separate incident, an Israeli soldier was shot dead by his comrades on the Gaza border.
An army spokesman said one group of soldiers had opened fire on another after mistaking them for Palestinians who had crossed the border into Israel.
Three Palestinian men who were later captured and taken in for questioning were found to be unarmed.
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