The BBC says:
The move will infuriate Palestinians, whose leaders have only recently agreed to resume contacts with Israel - at Mr Biden's urging.
The international community considers East Jerusalem, annexed by Israel in 1967, to be occupied territory.
Building on occupied land is illegal under international law.
Under US pressure, Israel has announced a 10-month suspension of new building in the West Bank. But the suspension excludes East Jerusalem, where the Palestinians want their capital.
Tentative progress had recently been made between the two sides as "proximity talks" began on March 7th with US Envoy to the Middle East George Mitchell serving as the go between in what many hoped would turn into full on negotiation.
This article available online at:
http://www.theatlantic.com/international/archive/2010/03/1-600-new-homes-approved-for-east-jerusalem/37232/