Note that this development follows a recent report that Shas spiritual leader, Rabbi Ovadia Yosef, had stated that US-Israeli relations were more important than continued construction in East Jerusalem.

Yishai to Washington: I apologize for construction permits
Eli Bardenstein, Maariv, April 26 2010 [Hebrew original here and at bottom of post]
Interior Minister Eli Yishai met last night in Jerusalem with Director of the Middle East department at the National Security Council Dan Shapiro.  In the meeting, Yishai made it clear to Shapiro, a high-ranking administration official, that he regretted the insensitivity displayed during the visit of Vice President Joe Biden to Israel.
The permits in question were issued at the beginning of March, during the US vice president’s visit to Israel.  The Jerusalem District Planning and Construction Committee, which is under the responsibility of the Interior Ministry, approved a plan for the construction of 1,600 housing units in the East Jerusalem neighborhood of Ramat Shlomo, sparking a crisis with the Americans.
In the course of the meeting, which was held at Shapiro’s initiative, Yishai made it clear to Shapiro that he attributed supreme importance to the Israeli alliance with the US administration, and promised that in future the Interior Ministry would know how to act with greater sensitivity during important visits. 
 However, Yishai emphasized that the Jewish neighborhoods in East Jerusalem were the only neighborhoods in which construction could be carried out in East Jerusalem, and said that construction there would continue.
Shapiro—a key figure with regard to Israel-US relations and a personal appointment of White House Chief of Staff Rahm Emanuel—conducted the entire meeting in fluent Hebrew, to Yishai’s surprise and joy.  Shapiro always accompanies special US envoy George Mitchell in all his visits to Israel and Ramallah. Read more of this post

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