The US has urged the Palestinians "not to react adversely" to Israel's approval of 1,200 new settlement homes only days before peace talks resume.
Secretary of State John Kerry said Sunday's move was "to some degree expected", but stressed that Washington considered settlements "illegitimate".
This "underscores the importance of getting to the table quickly", he told reporters during a visit to Colombia.
Palestinian negotiators have accused Israel of trying to sabotage the talks.
An Israeli government spokesman rejected the criticism, saying every peace initiative so far had proposed that the settlements affected become Israeli territory.
Hours later, the Israeli authorities published the details of the 26 long-term Palestinian prisoners who will be freed on Tuesday.
The delay allows time for last-minute legal challenges by the families of their victims, who have been protesting against the decision.
Security and borders
During a visit to Colombia on Monday, Mr Kerry was asked about the implications of the Israel's decision to issue tenders for building 793 housing units in East Jerusalem and 394 elsewhere in the West Bank.
He said the announcement was "to some degree expected", but that he did not expect it would derail the negotiations, which resume in Jerusalem on Wednesday two weeks after a preparatory round in Washington.
On Tuesday, it emerged that the municipality of Jerusalem had approved some 900 homes close to the Jewish settlement of Gilo in east Jerusalem. A city councillor was quoted as saying that construction would not begin for years.
Mr Kerry stated that the US "views all of the settlements as illegitimate" and had "communicated that policy very clearly to Israel".
"I think that what this underscores, actually, is the importance of getting to the table and getting to the table quickly and resolving the questions with respect to settlements, which are best resolved by solving the problems of security and borders," he said.
"With the negotiation of major issues, these kind of hot-point issues... are eliminated as the kind of flashpoints that they may be viewed today."
Mr Kerry added that he had spoken with Israel's chief negotiator, Justice Minister Tzipi Livni, and Prime Minister Benjamin Netanyahu, who is recovering from hernia surgery.
About 500,000 Jews live in more than 100 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem. The settlements are considered illegal under international law, though Israel disputes this.
On Sunday, Hanan Ashrawi, a member of the Palestine Liberation Organisation (PLO) executive committee, told the BBC that Israel was deliberately sending a message to the US that it would press ahead with "stealing more land" regardless of any attempt at launching negotiations.
Chief negotiator Saeb Erekat said: "If the Israeli government believes that every week they're going to cross a red line by settlement activity, if they go with this behaviour, what they're advertising is the unsustainability of the negotiations."
Israeli government spokesman Mark Regev said the construction "in no way changes the final map of peace".
"The construction decided upon in Jerusalem and in the settlement blocs is in areas that will remain part of Israel in any possible peace agreement," he told the BBC.
The Palestinians have previously agreed in principle to minor land swaps.
However, Finance Minister Yair Lapid, whose centrist Yesh Atid party is the second largest in Israel's coalition government, said the decision to call for tenders was "unhelpful to the peace process".
In a separate development on Monday, Israeli police said a missile fired towards the Red Sea resort of Eilat had been successfully intercepted by the Iron Dome missile defence system.
Residents had reported hearing a loud explosion and a siren.