Israel and the United States have discussed specific steps to try to improve the outlook for Israeli-Palestinian peace following a bitter U.S.-Israeli row over settlement building, the State Department said on Friday.

State Department spokesman P.J. Crowley said U.S. Middle East envoy George Mitchell would meet Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas in the region this weekend.

U.S. Secretary of State Hillary Clinton and Netanyahu held talks by telephone on Thursday but Crowley declined to provide details of the specific steps they had discussed.

"They discussed specific actions that might be taken to improve the atmosphere for progress toward peace," Crowley told reporters in Moscow, where Clinton was on a 36-hour trip.

"We are going to review the prime minister's response and continue our discussions with both sides to keep proximity talks moving forward," he added.

The United States last week announced the two sides had agreed to indirect talks via a mediator.

But these were thrown into doubt last week when Israel unveiled plans to build 1,600 homes for Jews in a part of the occupied West Bank that it has annexed to Jerusalem.

While building will not begin for years, Israel's announcement of the project during a visit by U.S. Vice President Joe Biden embarrassed the White House. Clinton, in unusually blunt remarks, called it "insulting".