The uproar created by Israel's decision to approve the construction of a further 1,600 homes inside a Jewish settlement in Arab East Jerusalem - clearly in direct violation of international law - continued last week with the United States resorting to some unusually strong language in criticism of its long-time ally.

I would imagine that the Israeli government thought the storm would soon die out and that it would be business as usual between Washington and Tel Aviv once Vice president Joe Biden returned to the US after his visit to the region.

Israeli governments often take America's support for granted, and one can hardly blame them because over the years and under various US administrations the strategic relationship between the two countries has remained very solid and has tended to overshadow the need for a just solution to the Palestinian question, with some exceptions, of course.

However, the US chorus of disapproval targeted at Israel carried on during the week with Secretary of State Hilary Clinton calling the announcement of the new housing project "insulting", while David Axelrod, an aide to President Barack Obama called it "an affront" and a "calculated" attempt to undermine the launch of indirect talks between Israel and the Palestinians, which have since been cancelled.

Furthermore, Clinton is said to have had an angry 45-minute telephone conversation with Prime Minister Benjamin Netanyahu, in which she urged him to abandon (to no avail) the planned housing project in east Jerusalem.

It seems that the Israelis were caught off guard by the American response to their latest decision on settlements and are clearly worried about a possible deterioration in relations between the two sides.

In fact, the Israeli Ambassador in Washington was reported to have told his diplomats that his country's relationship with the US was at "crisis point", comparable to the situation in 1981 when President Ronald Reagan sold air defences (AWACS) to Saudi Arabia, and in 1982 when Israel invaded Lebanon, much to the disapproval of Washington.

Oded Eran, head of Israel's Institute for National Security Studies and a former diplomat, said the crisis between Israel and the US was "deep and a cause for concern".

So is this state of affairs between two such strong allies really a "crisis"? What direction will it take and does the US really have that much leverage over Israel? First of all, the hardline nature of the Israeli government makes things much more difficult for the Obama administration, but that does not mean it has no influence over it. After all, the US gives Israel approximately $3 billion a year in military and economic aid, so it certainly does have a lot of clout and deserves to be listened to.

The US has long been involved in Middle East diplomacy and has managed to achieve some very promising results, such as the Camp David Accords under President Jimmy Carter in 1978 and the Oslo Agreement under President Bill Clinton in 1993. Mr Clinton came close to but failed to broker another agreement just before his presidency ended in 2000, and the Bush administration that succeeded him and the events of September 11 put the Middle East peace process on the back burner.

Negotiations between Israel and the Palestinians have been stalled for quite some time now and while both sides will have to make concessions if a peace agreement is to be reached, it is clear that Israel's refusal to freeze all settlement activity presents a real stumbling block to any meaningful peace talks.

The continual building of settlements on Arab land will soon make a two-state solution - which Israel claims to be in favour of - almost impossible.

The time has come for the US to take a harder stand with the Israeli government regarding settlements. It is true that America almost always supports Israel, no matter how intransigent its government may be, but I suspect that the Obama administration understands the seriousness of the situation and is genuine in its criticism of Israel's settlements policy.

I also believe the Obama administration realises just how harmful to American interests the current Israeli policies are. The US is trying hard to court the Muslim and Arab world after a difficult period under the previous Bush administration, but such reconciliation is, no doubt, hampered by Israel's lack of interest in the peace process.

Any Arab or Muslim country will look towards America with suspicion as a result of the behaviour of Israel, its close ally and friend. Such inflexibility by Israel will also fuel anti-American sentiment and radicalise public opinion throughout the Islamic world.

It is ridiculous for Israel to snub the US - which, after all, is the only country that can guarantee its security - by going ahead with its illegal settlements policy. Netanyahu has really gone too far and I hope Obama will make this clear to him very soon.

The US is the only nation that can exert influence over Israel , and it needs to flex its muscles now.