Israel rejects call to stop housing project

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To the Middle East now where Israel has rejected a US demand to suspend a planned housing project in east Jerusalem.

Israel's Prime Minister Benjamin Netanyahu delivers a speech during a memorial ceremony for Theodore Herzl, the founder of modern Zionism, at Mount Herzl military cemetery in Jerusalem July 12, 2009. REUTERS/Ariel Jerozolimski/Pool

The refusal threatens to deepen an unusually tense standoff with its strongest ally over settlement construction.

East Jerusalem is an especially volatile issue because it is the site of key Jewish, Christian and Muslim holy sites. Palestinians want the traditionally Arab sector of the city to be the capital of their future state.

On Sunday, Prime Minister Benjamin Netanyahu told his Cabinet there would be no limits on Jewish construction anywhere in what he called a "united Jerusalem."

Benjamin Netanyahu, Israeli Prime Minister, said, "Unified Jerusalem is the capital of the Jewish people and the State of Israel. Our sovereignty is non-negotiable and that means that the residents of Jerusalem can buy apartments in any part of the city. This has been the policy of any government in Israel."