US Secretary of State Hillary Clinton early on Monday condemned Israel's demolition of an east Jerusalem hotel complex, saying it undermines chances for peace with the Palestinians.
"We are very concerned about the initiation of demolition of the Shepherd's Hotel in east Jerusalem," Clinton said after arriving in Abu Dhabi for talks on the stalled Middle East peace process as well as on Iran and Iraq.
"This disturbing development undermines peace efforts to achieve the two state-solution," the chief US diplomat said in a statement.
"In particular, this move contradicts the logic of a reasonable and necessary agreement between the parties on the status of Jerusalem.
"We believe that through good faith negotiations, the parties should mutually agree on an outcome that realizes the aspirations of both parties for Jerusalem, and safeguards its status for people around the world.
"Ultimately, the lack of a resolution to this conflict harms Israel, harms the Palestinians, and harms the US and the international community.
"We will continue to press ahead with the parties to resolve the core issues, including Jerusalem, in the context of a peace agreement," she said.
The Palestinians reacted furiously to the demolition of part of the Hotel Shepherd, which sits on a plot of land in annexed east Jerusalem where developers plan to build a complex of 20 luxury apartments for Jewish settlers.
US-brokered peace talks between Israel and the Palestinians have been on hold since late September, when an Israeli freeze on the construction of Jewish settlements expired.
Palestinian leader Mahmud Abbas has insisted he will not hold peace talks while Israel continues to build on land which the Palestinians want for their future state.