Israel's ambassador to the United States, Michael Oren, has told the country's diplomats there that U.S.-Israeli relations face their worst crisis in 35 years, despite attempts by Prime Minister Benjamin Netanyahu's office to project a sense of "business as usual."

Oren was speaking to the Israeli consuls general in a conference call on Saturday night...

...Netanyahu consulted Sunday with the forum of seven senior cabinet ministers over a list of demands that U.S. Secretary of State Hillary Clinton made in a telephone conversation Friday.

Clinton harshly criticized the announcement last week of plans to expand the Ramat Shlomo neighborhood in East Jerusalem while U.S. Vice President Joe Biden was visiting Israel.

Haaretz has learned that Clinton's list includes at least four steps the United States expects Netanyahu to carry out to restore confidence in bilateral relations and permit the resumption of peace talks with the Palestinians.

1. Investigate the process that led to the announcement of the Ramat Shlomo construction plans in the middle of Biden's visit. The Americans seek an official response from Israel on whether this was a bureaucratic mistake or a deliberate act carried out for political reasons. Already on Saturday night, Netanyahu announced the convening of a committee to look into the issue.

2. Reverse the decision by the Jerusalem District Planning and Building Committee to approve construction of 1,600 new housing units in Ramat Shlomo.

3. Make a substantial gesture toward the Palestinians enabling the renewal of peace talks. The Americans suggested that hundreds of Palestinian prisoners be released, that the Israel Defense Forces withdraw from additional areas of the West Bank and transfer them to Palestinian control, that the siege of the Gaza Strip be eased and further roadblocks in the West Bank be removed.

4. Issue an official declaration that the talks with the Palestinians, even indirect talks, will deal with all the conflict's core issues - borders, refugees, Jerusalem, security arrangements, water and settlements...

Two advisers of the prime minister, Yitzhak Molcho and Ron Dermer, held marathon talks Sunday with senior White House officials in Washington and U.S. Mideast envoy George Mitchell and his staff to try to calm the situation. Mitchell will return to Israel Tuesday and expects to hear if Netanyahu intends to take the proposed steps.

At the beginning of Sunday's cabinet meeting, Netanyahu tried to convey a message that there was no crisis in relations with the United States. But he sent precisely the opposite message to Oren in Washington.

In Oren's Saturday conference call with the Israeli consuls general, he said that the current crisis was the most serious with the Americans since a confrontation between Henry Kissinger and Yitzhak Rabin in 1975 over an American demand for a partial withdrawal from the Sinai Peninsula...

The Obama Administration's recent statements regarding the U.S. relationship with Israel are a matter of serious concern. AIPAC calls on the Administration to take immediate steps to defuse the tension with the Jewish State...

...The Administration should make a conscious effort to move away from public demands and unilateral deadlines directed at Israel, with whom the United States shares basic, fundamental, and strategic interests...

...We believe the administration's actions are disproportionate and one-sided. It should be noted, there has been no similar official U.S. condemnation of any Palestinian action, including recent rioting on the Temple Mount and official Palestinian plans to name a public square for a female terrorist responsible for the worst single terror attack on Israeli soil...

...It is deeply unfair, but Israelis have to be smarter, more flexible and more self-controlled than other people just to survive.

In this latest crisis in the relationship with its most important ally, Israel has already shot itself in the foot and handed a great political victory to those in the administration who would like to see the two countries less closely associated. Israelis need to understand that putting the president of the United States in a humiliating position undercuts the strong support it enjoys in American public opinion.

This is particularly true because Israel's strongest supporters in the United States today belong to the Jacksonian school of American foreign relations. Jacksonians are honor-focused; they react very negatively to insults against the dignity and honor of the United States. While President Obama is not a Jacksonian favorite, he is the President of the United States, and gratuitous foreign insults to him and his administration do not go over well among the millions of Jacksonian American gentiles who today form the bedrock of Israel's American support...

...The important question for us is how the present situation can be turned into an opportunity to tackle a core issue at the heart of the conflict between Israel and the Palestinians - the need to establish a border between Israel and the future Palestinian state.

Fixing borders would eliminate the need to deal further with issues related to settlements on the West Bank or building in East Jerusalem.

We urge the United States to take this opportunity to suggest parameters to the parties for resuming negotiations - basing borders on the 1967 lines with mutually agreed land swaps, with the Palestinian state demilitarized and on territory equivalent to 100% of the area encompassed by the pre-1967 Armistice lines...