There’s something rotten in Denmark—er, Jerusalem. In the past year, the holy relationship between Israel and the United States has entered a period of alarming turbulence. The newest wrinkle in this complicated alliance—historically one of the U.S.’s most steadfast—is Israel’s announcement last week that it plans to build 1,600 new homes in East Jerusalem, an area of contention claimed by both the Israelis and the Palestinians. This announcement came hours after Vice President Joe Biden pledged his support for Israel on a visit to the country. Biden reacted with a biting criticism of the expansion, an uncharacteristic move in the delicate, highly politicized world of U.S. diplomacy. This recent scuffle is emblematic of the new tension between Israel and the United States, a tension that derives primarily from issue of Israeli settlements in the West Bank. In spring 2009, the Obama administration pressured Israel to halt all settlement building as means to bring the Palestinians to the negotiation table. Israel reluctantly instituted a 10-month freeze on settlement construction in November, but exempted East Jerusalem from this cessation. The new construction in Jerusalem potentially signifies Israel’s formal repudiation of the U.S. agenda.

Israel’s statement was indeed an oddball political move. Its timing was even stranger given the announcement, only the day before, that Israel and Palestine had agreed to four months of indirect peace talks, the first such negotiations in a year. Palestinians capitalized on the awkward timing of the construction, issuing statements accusing Israel of sabotaging the talks.

Some observers have trumpeted this fiasco as a low point in Israeli-American relations. Yet in truth, its messy aftermath was magnified by Biden’s statement; had it not coincided with his visit, it wouldn’t have proven nearly as explosive. The U.S. should not allow this event to be a lasting sticking point with Israel. Here’s why:

A significant difference exists between the settlements in the West Bank and the new homes Israel intends to build in Jerusalem. The controversial settlements—the root of the growing U.S.-Israel rift—are Israeli outposts embedded in Palestinian territory. They are run and vehemently defended by rightist Israeli zealots, and represent a fervent opposition to the more liberal land-for-peace doctrine.

The proposed housing in East Jerusalem does not fall under this category. The population of East Jerusalem is split fairly evenly between Israelis and Palestinians, and the construction is only to occur in an Israeli suburb. It has been Israeli policy to build in this area since 1967, a policy that has never undermined any major negotiation effort, from Israel’s peace agreements with Egypt in the 1970s to the Oslo talks in 1993. Construction in East Jerusalem is vastly different from West Bank settlement—a difference the U.S. must recognize.

True, Palestinians do exhort Israel to change its Jerusalem policy. But observers must consider the track record of Israeli land policy that accommodates Palestinian interest. Israel’s unilateral withdrawals of troops from Gaza and Lebanon have not resulted in any lasting peace, only increased rocket attacks on Israel. Given these results, paring down the Israeli presence in East Jerusalem is not prudent. East Jerusalem—home of the Temple Mount, Western Wall, Church of the Holy Sepulchre, all of invaluable meaning to both Jews and Muslims—is too important for Israel to risk on the off-chance of Palestinian reciprocity.

The U.S. has a valid argument against Israel’s settlement forays into the West. But to oppose the Jerusalem construction is unfounded micromanagement. Since reclaiming Jerusalem in the Six Day War of 1967, Israel has every right to build as it pleases in the city, especially in a Jewish suburb.

The resultant rift over this issue further erodes the U.S.’s emotional and rhetorical support for Israel. Israel relies on this support for its own confidence, a confidence that is essential in future negotiations with the Palestinians.