Reporting from Jerusalem - In the midst of a high-profile trip by Vice President Joe Biden, Israel unveiled plans for new housing in disputed Jerusalem on Tuesday, a surprise step that embarrassed and angered the highest ranking Obama administration official yet to visit the country.

Biden, who had come to try to smooth relations with a longtime ally and promote new peace talks, denounced Israel's plans to build 1,600 housing units in traditionally Arab East Jerusalem as a threat to the search for peace.

"I condemn the decision by the government of Israel to advance planning for new housing units in East Jerusalem," Biden said, calling it "precisely the kind of step that undermines the trust we need right now."

"We must build an atmosphere to support negotiations, not complicate them," Biden said.

The sharp turn of events abruptly changed the tenor of the trip in its second day, coming just hours after the vice president proclaimed his love for Israel and declared enduring U.S. support. Biden's visit followed a year of tension brought on by Israel's defiance of the Obama administration's admonitions on precisely the same issue: housing settlements in disputed areas.

In Washington, the White House reiterated the criticism. It was unclear how deeply the latest step by Israel would affect ties between the two countries.

Aides said Biden raised the issue with Israeli Prime Minister Benjamin Netanyahu at a dinner given in honor of the vice president's visit. U.S. officials have repeatedly warned Israel that such development in Jerusalem would anger Palestinians, who want to make East Jerusalem the capital of a future state, and further threaten prospects for peace.

Biden is to deliver a major address Thursday on U.S.-Israeli relations. Before he leaves the region, he will also meet with Palestinian and Jordanian officials.

Israelis sought to downplay any relation between the announcement and Biden's visit, saying the housing plans have been years in the making and that Netanyahu, who appeared in public with the vice president hours earlier, had no idea they were being unveiled.

Nonetheless, the plans by the Interior Ministry to build the 1,600 homes for Israelis in the Ramat Shlomo neighborhood of Jerusalem cast a dark shadow over Biden's visit.

Palestinian leaders consider such housing moves a threat to a future Palestinian state, and the announcement quickly brought protests. Palestinian officials said the move was timed to Biden's visit and called for a strenuous U.S. response.

A spokesman for Palestinian Authority President Mahmoud Abbas described the housing plan as "dangerous" and said it would "torpedo negotiations and the American effort even before they start."

The announcement caught even many Israelis by surprise, in part because the neighborhood, home to many young couples, had not been among those previously earmarked for expansion. Ramat Shlomo is in an Orthodox neighborhood built on land annexed by Israel after the 1967 war.

"It's totally out of the blue," said Hagit Ofran, spokeswoman for Peace Now, which tracks Israeli settlements.

She said the project came up for initial review at a planning meeting Tuesday, and still faces several hurdles before approval. Construction may not begin for two years, she said.

"But politically, it means there is an intention to expand there," she said.

Only Monday, George J. Mitchell, the former U.S. senator who serves as Obama's special envoy for Middle East peace, cautioned Israelis and Palestinians to refrain from any words or action that could disrupt a planned new round of talks.

Biden's trip was intended to promote the new negotiations, known as "proximity" talks, with U.S. officials carrying messages between the two sides. The talks were to begin within weeks.

Biden said Tuesday that the prospect of new talks, after a year without negotiations, offers a "moment of real opportunity."

In the first hours of his visit, the vice president, who was staunchly pro-Israel during his many years in the Senate, played down frictions and emphasized his personal love for the country.

"It's great to be home," Biden told President Shimon Peres during a morning visit to his official residence.

He set aside criticism of Israelis or Palestinians, saying that "it's easy to point fingers at what both sides have done. But it's also important to give credit for what has been done."

Biden offered praise for Israel's temporary halt on settlement growth, and for allowing Palestinians to move more freely in the West Bank.

"The cornerstone of the relationship is our absolute, total, unvarnished commitment to Israel's security," he said. In the guestbook at Peres' residence, Biden wrote that the U.S.-Israeli bond is "unshakeable."

When Netanyahu presented Biden a picture of a grove of trees Israel had planted in honor of his late mother, Biden responded that "my love for your country was watered by this Irish lady."

The ensuing housing announcement sent U.S. officials scrambling to unravel what had happened and how. Israel's Interior Ministry, in contrast to its usual practice, released a news statement Tuesday regarding the plans, in an apparent effort to ensure widespread coverage.

Some in Israel saw the move as orchestrated by Interior Minister Eli Yishai, a leader of the right-wing Shas Party, to express his displeasure with Netanyahu's recent embrace of the indirect peace talks with Palestinians.

"The fact Eli Yishai couldn't hold it in for two or three more days until Biden leaves the country proves his intention was to slap the American administration's face," Meir Margalit, a liberal Jerusalem City Council member, told Haaretz newspaper Tuesday night.

Ofran, of Peace Now, said that even if the prime minister's office was unaware of the Interior Ministry's plan, it should be held responsible.

"They are playing with fire," she said. "Planning in Jerusalem is not like normal planning issues. The government is acting irresponsibly by not making sure these kinds of provocations don't occur."