Despite Washington's criticism on Jewish settlement activities in East Jerusalem, Israeli Prime Minister Benjamin Netanyahu said in Washington on Monday that Jerusalem was not a settlement, but the eternal capital of Israel.

Israeli Prime Minister Benjamin Netanyahu gestures as he addresses the gala banquet of the American Israel Public Affairs Committee (AIPAC) annual policy conference in Washington, March 22, 2010. [Xinhua]

"The Jewish people were building Jerusalem 3,000 year ago and the Jewish people are building Jerusalem today. Jerusalem is not a settlement. It's our capital," Netanyahu told the annual policy conference of the American Israel Public Affairs Committee (AIPAC), the most influential America's bi-partisan pro-Israel lobby group.

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Prime Minister Netanyahu arrived in Washington on Monday afternoon, in an effort to relief tensions with the Obama administration, who was angered by Israel's plan for building more houses for Jewish settlers in East Jerusalem.

Jewish "neighborhoods" in East Jerusalem which was captured by Israel in the 1967 Middle East War are considered by the international community as Jewish settlements.

In 1980, the Israeli parliament, or the Knesset, passed the basic law of "Jerusalem, capital of Israel," claiming the complete and united Jerusalem is Israel's eternal capital.

The status of Jerusalem remains one of the core issues in the Israeli-Palestinian conflict. Israel's annexation of East Jerusalem has not been internationally recognized, and the Palestinians want East Jerusalem to be the capital of a future Palestinian state.

"Everyone knows that these neighborhoods will be part of Israel in any peace settlement. Therefore, building them in no way precludes the possibility of the two-state solution," Netanyahu said, referring to recent dispute with the Obama administration over the Jewish settlement activities in East Jerusalem.

Hours before Netanyahu's speech, U.S. Secretary of State Hillary Rodham Clinton told some 7,500 pro-Israel activists that the Jewish settlement activities backed by the Netanyahu-led government in East Jerusalem and the West Bank had undermined mutual trust and endangered the peace talks with the Palestinians.

"It exposes daylight between Israel and the United States that others in the region could hope to exploit. And it undermines America's unique ability to play a role, an essential role, in the peace process," said Clinton at the AIPAC conference.