WASHINGTON (AP) — A last-ditch effort to heal the deep dispute between two longtime allies failed when Israeli Prime Minister Benjamin Netanyahu and the United States’ main Mideast envoy were unable to resolve a rift over new Israeli housing in east Jerusalem.

U.S. Secretary of State Hillary Clinton (R) is greeted by Lee Rosenberg (L), President of the American Israel Public Affairs Committee, as she takes the stage to address their annual policy conference in Washington, March 22, 2010. Last week the influential pro-Israel lobbying group released a statement that called on the White House to take immediate steps to defuse tension with Israel over a settlement dispute.                      REUTERS/Jonathan Ernst

Before departing the U.S. early Thursday, Netanyahu said he thought some progress had been made in defusing the unusually public spat.
“I think we have found the golden path between Israel’s traditional policies and our desire to move forward toward peace,” the Israeli leader said as he boarded his plane for the trip back to Jerusalem.

But Obama administration officials said the last-minute talks late Wednesday between the visiting Netanyahu and former Sen. George Mitchell had not ended tensions over Israeli construction in the part of Jerusalem that Palestinians want to be a capital of a separate state.

The officials spoke on condition of anonymity because the closed-door talks were confidential.

U.S. and Israeli officials told The Associated Press that the talks were aimed at getting Israeli-Palestinian peace talks back on track. Netanyahu had extended his stay by hours to work on a deal, but the talks ended at about 8 p.m. without any announcements, one official said.

The two sides had hoped to come up with mutually acceptable ideas to improve an atmosphere poisoned by announcements of the new Jewish housing projects. An Israeli official said Israel wants to see talks with the Palestinians resume quickly. The evening talks were intended to promote that goal, the official said.

Netanyahu twice pushed back his departure from Washington after talks with President Barack Obama, Vice President Joe Biden and Secretary of State Hillary Rodham Clinton failed to reach consensus on what Israel could do to repair damage caused by the housing announcements.

During Netanyahu’s frosty visit, “the U.S. made clear it is looking for steps to increase confidence and show commitment to the process,” said Mark Toner, the deputy State Department spokesman.

Israeli Prime Minister Benjamin Netanyahu gestures as he addresses the gala banquet of the American Israel Public Affairs Committee (AIPAC) annual policy conference in Washington, March 22, 2010. Following his meeting with President Barack Obama, however, there was no agreement announced, no photos taken and no evidence of any healing in what appeared to be a major rupture in relations. REUTERS/Jonathan Ernst

Earlier Wednesday, the Obama administration challenged Israel to explain yet another announced plan to expand Jewish housing in east Jerusalem, the same issue that soured U.S.-Israeli relations ahead of Netanyahu’s three-day visit to Washington this week.
Palestinians claim east Jerusalem as the capital of a future independent state, and the United States sees continued Israeli building there as a provocation that makes peace negotiations harder.

Netanyahu offered no concessions during his visit on an earlier plan to build 1,600 homes for Jews in the disputed part of the city. Netanyahu’s government has refused to back off steady expansion of Jewish neighborhoods in the majority Arab city section.

An aide to Netanyahu said the prime minister was caught off-guard by the announcement Wednesday that the Jerusalem municipality has approved 20 new apartments for Jews.

Mitchell returned to the U.S. on Tuesday from talks with Palestinian leader Mahmoud Abbas on the West Bank, apparently without agreement on when the Palestinians would be willing to open a new round of U.S.-mediated talks.

U.S. officials said discussions about the peace talks continue, and Mitchell plans to return to the region after the Jewish Passover holidays, which begin next week.

In an exceptional step, no photographs of Netanyahu’s meeting Tuesday with President Barack Obama at the White House were permitted, and neither side has provided a substantive account of the session.