Israeli Prime Minister Benjamin Netanyahu praised President Barack Obama on Wednesday and spoke by telephone with his vice president as a vocal feud over Jewish settlements took on softer tones.

But Palestinian President Mahmoud Abbas cast more doubts on prospects for getting indirect peace talks with Israel under way soon, reaffirming a demand it first halt all settlement construction.

In an unusual twist in a week of heightened rhetoric in the U.S.-Israeli relationship, Netanyahu had to distance himself from comments by his brother-in-law, an ultranationalist, who called the president an anti-Semite in a radio interview.

"I have a deep appreciation for President Obama's commitment to Israel's security, which he has expressed many times," Netanyahu said in a statement, disavowing himself from all comments made by Hagai Ben-Artzi, his wife's brother.

Israel angered the Palestinians and touched off a spat with Obama's administration after announcing plans, during a visit by Vice President Joe Biden last week, to build 1,600 homes for Jews near East Jerusalem, in West Bank territory it annexed after a 1967 war.

Israel regards all of Jerusalem, including the eastern sector captured 43 years ago, as its capital. Palestinians want East Jerusalem to be the capital of the state they hope to establish in the West Bank and Gaza Strip.

An Israeli political source said Netanyahu, who had already apologised to Biden over the timing of the settlement announcement, spoke by telephone on Tuesday with the vice president. The source gave no details of their conversation.

U.S. Secretary of State Hillary Clinton had called Israel& apos;s settlement announcement an insult and pressed it to take steps to show it was serious about new peace moves.

But in less confrontational tone on Tuesday, Clinton told reporters Washington has "an absolute commitment to Israel's security" and spoke of "a close unshakeable bond."

A State Department spokesman made clear, however, that U.S. officials expected a formal Israeli response shortly to the demands Clinton laid out to Netanyahu last week, and that this would inform the next U.S. moves on the issue.

Israeli media reports said Clinton wanted Israel to shelve the housing plan and agree to discuss core statehood issues with the Palestinians once indirect peace talks began. Netanyahu has said he would not curb building for Jews anywhere in Jerusalem.

SETTLEMENT FREEZE

With Arab League support, Abbas agreed two weeks ago to the U.S.-mediated talks, effectively backing away from his demand Israel halt all settlement activity in line with a 2003 peace "road map" that also obliges the Palestinian Authority to dismantle "terrorist capabilities and infrastructure."

Reaffirming his original demand, Abbas told reporters on Wednesday: "We demand the fulfilment of commitments before going to indirect negotiations."

U.S. Middle East peace envoy George Mitchell on Tuesday put off plans to return to the region. The State Department said he would not begin another mission until at least after Middle East peace mediators met in Moscow on Thursday and Friday.

The diplomatic flareup over the past week has raised concern in Israel that security cooperation with the United States over a future nuclear-armed Iran could be jeopardised.

The White House has been criticised by U.S. lawmakers and pro-Israel advocacy groups for its harsh stance towards Israel, which analysts said was likely one reason for its changed tone.

Netanyahu is scheduled to address AIPAC, a pro-Israel lobby group, in Washington on Monday. During his visit, he is likely to meet members of Congress, where support for Israel is strong.

No plans have been announced for talks with Obama administration officials. Obama himself is expected to be travelling overseas during Netanyahu's visit.

(Additional reporting by Steve Holland, Arshad Mohammed and Ross Colvin in Washington and Tom Perry in Ramallah, Editing by Dominic Evans)