The tough words by Prime Minister Benjamin Netanyahu threatened to deepen a rift with the White House over Israeli construction in the West Bank and east Jerusalem, areas captured by Israel in the 1967 Mideast war and claimed by the Palestinians as parts of a future independent state.
Israel came under fire last week after a Jerusalem city official signed the final go-ahead for construction of a new housing development in east Jerusalem.
A day earlier, an ultra nationalist Jewish group said dozens of settlers would move into six apartment buildings purchased in the heart of a predominantly Arab neighbourhood of east Jerusalem.
But the international community, including the United States, does not recognise Israel's annexation of the area and considers construction there to be illegitimate settlement activity.
In a striking public rebuke last week, the obama administration warned Israel that the new project would distance Israel from "even its closest allies" and raise questions about its commitment to seeking peace with Palestinians.
In an interview broadcast Sunday on CBS's "Face the Nation," Netanyahu said he does not accept restrictions on where Jews could live, and said that Jerusalem's Arabs and Jews should be able to buy homes wherever they want.
The White House declined comment.
