Israeli Prime Minister Benjamin Netanyahu has defended the Israeli government's right to build in Jerusalem.

He told a meeting of an American pro-Israel lobby group in Washington that, "Jerusalem is not a settlement. It is our capital". He did not refer specifically to the controversial plan to build 1600 new houses in occupied East Jerusalem, which prompted fierce international criticism and strained Israel's relations with the United States.

Speaking at the same conference earlier in the day, US Secretary of State Hillary Clinton warned that the plan was undermining peace negotiations with the Palestinians. Later today, the Israeli prime minister is due to hold another meeting with President Barack Obama.