The United States, United Nations, Russia and European Union -- the so-called Quartet of Mideast peacemakers -- said unilateral moves by either the Palestinians or Israelis "cannot prejudge the outcome of (peace) negotiations."
The group said it would assess the situation at a meeting in Moscow next week.
U.S. Secretary of State Hillary Clinton, meanwhile, told Israeli Prime Minister Benjamin Netanyahu his government was sending a "deeply negative signal" for U.S.-Israeli relations.
A pro-Israeli group in the United States, the Anti-Defamation League, said it was "stunned" by Clinton's "dressing down" of Israel.
"We cannot remember an instance when such harsh language was directed at a friend and ally of the United States," said Abraham Foxman, director of the ADL, in a statement.
Israel announced approval of 1,600 houses in east Jerusalem on Tuesday.
On the same day, U.S. Vice President Joe Biden arrived in Jerusalem with hopes of reviving indirect peace talks between the Palestinians and Israelis.
After the Israeli announcement, the Palestinians threatened to pull out of U.S.-brokered indirect talks with Israel.
The Palestinians have called the settlement announcement an attempt by Netanyahu to sabotage peace talks in which he could come under pressure to exchange land for a deal.
compiled from agency reports
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