Israeli Prime Minister Benjamin Netanyahu said Tuesday that Israel would rethink plans to construct controversial new settlements in the Palestinian Territories.
The announcement came just hours after Israel's Housing Ministry said it had plans for potential construction of new settlements in the West Bank, including a contested area near Jerusalem.
The move would have created 20,000 new settler homes.
The initial call was met by anger among Palestinian leaders who said that they would not carry on with peace talks if the construction was carried out.
The United States said it had been blindsided by the plans and demanded Israel give an explanation.
"We were surprised by these announcements, and are currently seeking further explanation from the government of Israel," State Department spokeswoman Jen Psaki said before Netanyahu's announcement.
"Our position on settlements is quite clear — we do not accept the legitimacy of continued settlement activity. We've called on both sides to take steps to create a positive atmosphere for the negotiations," Psaki said.
Netanyahu said he had instructed his housing minister to reconsider the idea, since it would cause "unnecessary confrontation" with the international community at a time when Israel was seeking to build support against Iranian nuclear ambitions.
In a late-night statement, he said that the move was a "meaningless step" that would have made no contribution to Israeli settlement and only hurt the cause.
The US has helped re-start peace talks between the Israelis and the Palestinians, after five years of stalls.
US officials had pressured the Palestinians to drop demands for a halt to Israeli settlement expansion and recommence talks.
But continued expansion of Israeli settlements in the West Bank prompted US Secretary of State John Kerry to question last week whether Israel was serious about the peace talks.