The Obama administration has made clear its demand for a freeze on illegal Israeli settlements on the West Bank and in East Jerusalem. Benjamin Netanyahu, the Israeli prime minister, has declined to demonstrate any willingness to accede. The US cannot afford to ignore this new round of colonisation in occupied East Jerusalem.

The Jerusalem municipality’s approval of plans by a businessman linked to the religious Ateret Cohanim organisation to build new flats on a site once owned by the prominent Palestinian al-Husseini family is a provocation. It is also part of a pattern of administrative techniques used to change the demographic mix of the city, in contravention of international law.

US officials were right to demand a halt to the development in private meetings with Israel’s ambassador to Washington. Mr Netanyahu’s decision to go public with his firm rejection of that request amounts to provocation.

Israeli voters may yet punish a government which appears to be wilfully undermining Israel’s most important alliance. There are signs the American Jewish community is increasingly exasperated with a government in Tel Aviv more disposed to brinkmanship than real negotiation.

Jerusalem has long been a sore point in US-Israeli relations. The US rejects Israel’s unilateral claim to sovereignty over the whole city, insisting that its final status can only be decided by future Israeli-Palestinian negotiation.

In the meantime, however, facts on the ground are being changed and a secular dispute over Jerusalem’s status is becoming an inflammatory religious confrontation. The only winners are the extremists on both sides.

A report released on Tuesday by the International Crisis Group points to the growing stridency of the national-religious settler voice in Israeli politics.

President Obama’s Cairo speech set out a balanced approach to the Israeli-Palestinian conflict, matching recognition of America’s unbreakable bond with Israel with support for a genuine Palestinian state. Confronting Israel’s illegal settlements is a cornerstone of this approach, a point reiterated at every opportunity by Middle East peace envoy George Mitchell.

America must be prepared, in time, to back its words with action. Israelis will repudiate any government that puts the US alliance in jeopardy. If the US fails to use its clout, its credibility in the Middle East will be shot, and hopes for an equitable and lasting peace will fade further still.