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Israel on Wednesday dismissed mounting pressure to stop building homes for Jewish settlers in annexed east Jerusalem, with Foreign Minister Avigdor Lieberman saying the demands were "unreasonable."

His comments came at a time when Israel and Washington seek to tone down a diplomatic row which erupted over new settlement plans announced last week while US Vice President Joe Biden was in the region to renew peace efforts.

"This demand to forbid Jews from building in east Jerusalem is totally unreasonable," Lieberman said at a joint news conference with visiting EU foreign policy chief Catherine Ashton.

Related article: Abbas asks EU to press Israel

"I think that this demand, it comes, in many ways, as an opportunity for the international community to jump on Israel and apply pressure to Israel and to demand things that are unreasonable," the right-wing minister said.

Israel and the Palestinians, meanwhile, accused each other of hampering the already hobbled peace process.

But tensions eased in Jerusalem as Israel reopened the flashpoint Al-Aqsa mosque compound one day after the Holy City saw the heaviest Palestinian rioting in years with dozens of police and protesters injured.

Israeli police remained on high alert in and around the Old City where the mosque compound, the holiest site for Jews and the third holiest for Muslims, is located.

A few dozen Palestinian youths hurled rocks at security forces who responded by firing rubber-coated bullets in the Qalandia refugee camp in east Jerusalem, but the rest of the city was generally calm.

In the West Bank, medics said three people were wounded when Israeli troops fired rubber bullets at Palestinians hurling stones near Nablus, while the army sealed off several roads in and around Hebron after brief clashes in that city.

Facts on the ground: Israel's Jewish settlements

But Israel lifted the complete lockdown on the occupied West Bank it had imposed almost one week earlier.

Jordan's King Abdullah II on Wednesday demanded that the international community take firm action.

"Jerusalem is a red line and the world should not be silent about Israel's attempts to get rid of Jerusalem's Arabs residents, Muslims or Christians," he told Ashton before she travelled on to Israel.

Tensions have also soared over the opening of a rebuilt 17th century synagogue in the Jewish quarter of the Old City, a few hundred metres (yards) from the mosque compound.

Israel's announcement of plans to build 1,600 new homes for Jewish settlers in mainly Arab east Jerusalem had already fuelled tension and sparked a row with the United States.

Washington, frustrated over a lack of progress in its peace brokering, reacted angrily to the announcement but senior US officials now appear eager to patch up relations.

Prime Minister Benjamin Netanyahu spoke overnight with Biden, sources in his office said on Wednesday, while US officials said Secretary of State Hillary Clinton would soon speak with the head of Israel's coalition government.

But Israel and the Palestinians did not appear to make any progress towards a resumption of peace negotiations that were halted at the outset of the December 2008-January 2009 Gaza war.

Netanyahu insisted that while Israel "has proven its commitment to peace," the Palestinians were "continuing to incite towards hatred and violence."

Focus: 'New intifada unlikely'

He pointed to Israel's decision in November to impose a partial moratorium on Jewish settlement construction in the West Bank, excluding east Jerusalem which the Palestinians want as the capital of a future state.

But Palestinian president Mahmud Abbas insisted Israel must abide by its "obligations" and "freeze settlement activity in all Palestinian territories, including Jerusalem."

"We have given our agreement to indirect negotiations, known as 'proximity talks,' and we have no preconditions," he said after talks with Brazilian President Luiz Inacio Lula da Silva in Ramallah.

But Arab League chief Amr Mussa said on Wednesday during a visit to Beirut that a renewal of Palestinian-Israeli peace talks would be "pointless" in the present climate.

AFP