Prime minister Benjamin Netanyahu returned to Israel without healing a deep rift with the US over the expansion of Jewish settlements in Jerusalem.

..He claimed to have ‘found the golden path’ towards middle east peace following his two-day visit to Washington but American officials said last-minute talks had not ended tensions.

Elder statesman Shimon Peres, the Israeli president, confirmed Mr Netanyahu ‘apparently ... did not reach an understanding with the United States of America’.

Mr Netanyahu had extended his stay by hours to work on a deal aimed at getting Israeli-Palestinian peace talks back on track.

But he would not back down on plans announced earlier this year to build 1,600 homes in the predominantly Arab quarter of Jerusalem, which it sees as its capital.

Palestinians want a complete settlement freeze in east Jerusalem and the rest of the West Bank.

Talks were soured further when it was announced yesterday that a US millionaire, who has been buying property for settlers, had been given approval to build a 20-unit apartment block for Jews.

An aide said Mr Netanyahu was caught off guard by news of the development around the former Shepherd Hotel where Palestinians had been living until they were evicted last year.

The EU said it ‘condemned’ the latest expansion of settlements.

by Joel Taylor