U.S. Vice-President Joe Biden was critical Wednesday of Israel's plan to build new homes in east Jerusalem. (Tara Todras-Whitehill/Associated Press)

U.S. Vice-President Joe Biden said the Palestinians deserve a "viable" independent state with contiguous territory as he reiterated his criticism over Israel's plan to build 1,600 new homes in the east Jerusalem.

"It's incumbent on both parties to build an atmosphere of support for negotiations and not to complicate them," Biden said Wednesday as he stood alongside Palestinian President Mahmoud Abbas in Ramallah, West Bank.

Biden met with Israeli leaders on Tuesday and with Palestinian leaders on Wednesday in an effort to restart peace negotiations. Israeli and Palestinian officials have agreed to indirect talks with an American envoy.

"The decision by the Israeli government to advance planning for new housing units in east Jerusalem undermines that very trust the trust that we need right now in order to begin as well as produce profitable negotiations."

The U.S., along with the Palestinians, considers settlements built on disputed lands to be obstacles to peace.

Israel apologized for the timing of the announcement but stood by its decision.

"This Israeli government and Prime Minister Netanyahu has gone further than any previous Israeli government in placing restrictions on growth in the settlements," said Mark Regev, a spokesman for Netanyahu.

But we have to be clear, from the point of view of Israel, Jerusalem is not a settlement. It's our capital and will remain as such."

Israel wants to retain control of an undivided Jerusalem but the Palestinians want east Jerusalem as the capital of a future state.

Biden said the Palestinians deserve an independent state that is "viable and contiguous," meaning the territory should not be broken up by Israeli settlement enclaves.

Abbas said Israel's continued settlement construction, especially in Jerusalem, threatens the negotiations before they get off the ground.

"We call on Israel to cancel these decisions," Abbas said. "I call on the Israeli government not to lose a chance to make peace. I call on them to halt settlement building and to stop imposing facts on the ground."

With files from The Associated Press