Newly inaugurated President Donald Trump spoke with Israeli Prime Minister Benjamin Netanyahu Sunday in a conversation the latter described as "very warm."
It came as controversial East Jerusalem settlement housing units were given the green light by the Israeli government. A White House spokesman said Sunday that the United States is beginning to look at moving its embassy from Tel Aviv, where it is now located, to Jerusalem.
How the Trump administration handles those two issues could carry major global implications. Here are the key questions explained.
Why are East Jerusalem settlements controversial?
The Palestinians want to establish their future capital in East Jerusalem, while Israel sees the whole city as its own capital. While the western part of the city is almost entirely populated by Jews, the eastern part, historically, has been home to Arabs. Since the 1967 Arab-Israeli war, Jews began moving into that territory, though under international law, settlements in the region (as well as the West Bank and the Golan Heights) are considered illegal.
The United Nations Security Council passed a resolution in December denouncing Israel's construction of settlements in Palestinian-occupied territory and would view this move as a flagrant violation of it. The United States, still under the leadership of Barack Obama at the time, abstained from the vote, a move seen globally as approval of the resolution.
Why were some projects given the go-ahead now?
The timing of the announcement of these settlement housing units, just days after Mr. Trump was inaugurated as President, is key. Officials in Israel have explicitly stated that they feel they can now build since Mr. Obama, with whom they had strained relations, is out of office.
"The rules of the game have changed with Donald Trump's arrival as President," Jerusalem deputy mayor Meir Turgeman told Agence France-Presse.
In a statement Sunday, Mr. Netanyahu said, "We can build where we want and as much as we want."
Last year, Mr. Trump spoke on the campaign trail about how he was Israel's "best friend," and promised to chart a new path in U.S.-Israeli relations. After the UN vote, Mr. Trump said in a tweet, "Stay strong Israel, January 20th is fast approaching!"
Mr. Trump's controversial choice for ambassador to Israel, David Friedman, has publicly stated many times he is in favour of Israeli settlement in occupied territory.
What has been the response?
"We strongly condemn the Israeli decision to approve the construction," said a spokesman for Palestinian president Mahmoud Abbas.
Rex Brynen, a political scientist at McGill University who specializes in Israeli-Palestinian relations, said: "There's pretty much a wall-to-wall international consensus that Israeli policy is a train wreck that will have lasting political implications for the rest of us." If annexation continues, he said, "it will make the issue impossible to resolve and we'll just sort of drag it out into a messy fight that will not get easier from generation to generation."
Why is the move controversial?
No country in the world has its Israeli embassy in Jerusalem, as the city is universally understood to be a disputed territory. It is home to sacred sites for Jews, Muslims and Christians. Because the status of Jerusalem hasn't been determined yet in peace talks, the United States moving its embassy there without also upgrading its consulate in West Jerusalem to become an embassy of a future Palestine would signal the U.S. government's recognition of Israel's claims to the city.
What have other U.S. presidents done?
The U.S. embassy in Israel has been in Tel Aviv for 68 years. In 1995, the U.S. Congress passed the Jerusalem Embassy Act, designed to allow the establishment and funding of a U.S. embassy in Jerusalem. But while this piece of legislation is on the books, presidents Bill Clinton, George W. Bush and Mr. Obama never implemented it given the potential impact it could have.
Refusing Israel's requests to move the embassy to Jerusalem "has become a bit of a litmus test of commitment to the peace process and sensitivity to Palestinian and Arab feelings," Prof. Brynen said.
What do critics fear might happen?
Critics say moving the embassy will sound the death knell for establishing a two-state solution in the region, a goal the international community almost universally supports.
For the United States, such a play could deeply damage the country's relations with Palestinians and other Arab countries, which could have long-term effects.
More immediately, opening an embassy in Jerusalem could spark political violence on the ground.
"It will certainly generate a reaction not only on the Palestinian streets, but more broadly will be seen as an indicator of the U.S. hewing very closely to a particular Israeli position," Prof. Brynen said.