Israel's relations with some of its strongest friends in Europe took a dramatic downturn on Monday when Britain, France, and Germany publicly berated Jerusalem's decision to expand settlement construction in the wake of the Palestinian Authority's statehood bid at the United Nations last week.

"We appeal to the Israeli government to desist from this procedure (for building more settlements)," German government spokesman Steffen Seibert told a news conference, adding that the plans undermined efforts to revive peace talks by reducing the land available for a future Palestinian state.

The U.K., France and Sweden summoned the Israeli ambassadors in London, Paris and Stockholm to explain their government's position in the wake of Israel's decision from this week to build some 3,000 housing units in east Jerusalem, Judea and Samaria, as well as plans to build in the E1 section between Jerusalem and Maaleh Adumim.

"The Israeli ambassador to London, Daniel Taub, has been summoned to the Foreign Office this morning for a meeting with the minister for the Middle East, Alistair Burt, to discuss this further," a Foreign Office statement said. The Foreign Office said it expects Israel to reverse its decision to build in E1.

According to a report in the daily Haaretz on Monday, London and Paris were "shocked" by the cabinet's decision to approve the construction as a retaliation for the U.N. vote to grant the Palestinian Authority's mission the status of a nonmember observer state ("Palestine" was previously a non-state observer entity). Haaretz reported that London and Paris were mulling recalling their ambassadors from Israel, a claim rejected later in the day by France. Britain however, according to Sky News, was still considering the recall, as well as stronger displays of its displeasure such as suspension of trade agreements.

Diplomatic sources said both London and Paris were considering the unprecedented step of recalling their ambassadors to Tel Aviv, but both countries signaled there was still room for maneuver to avoid a deep crisis with Israel.

"There are other ways in which we can express our disapproval," a French Foreign Ministry official told Reuters in Paris after diplomatic sources said France and Britain were mulling whether to order their envoys home from Tel Aviv.

The British government was expected to decide later on Monday how to respond to Israel's building plan in the E1 area of east Jerusalem, with one Foreign Office source telling Sky News that "all options are on the table."

In Jerusalem, sources from the Prime Minister's Office have denied the reports, according to Israel Radio.

The two European countries, staunch Israeli allies, were particularly troubled by Israel's decision to allow construction in the controversial E1 section, which lies between Jerusalem and Maaleh Adumim. If that area is transformed into a residential neighborhood, it would effectively expand Jerusalem well into the West Bank and make it impossible to redraw the municipal borders in a future peace agreement.

Haaretz noted that France and the U.K. have never recalled their ambassadors to Israel. The two are in lockstep and decided on this together, the paper reported, saying the foreign ministries of both countries believe the Israeli actions show the Jewish state is "ungrateful for their support during the latest Israeli campaign against Hamas in the Gaza Strip."

Both embassies declined to comment on the reports, but the British mission issued a statement saying it had made clear it would not support strong Israeli retaliation to a U.N. vote last week.

"The recent Israeli government decision to build 3,000 new housing units threatens the two-state solution and makes progress through negotiations harder to achieve," the British Embassy in Tel Aviv said in a statement. "We have called on the Israeli government to reconsider." A diplomatic source, who declined to be named, said London would decide later in the day whether to recall its ambassador.

An unnamed Israeli official told Army Radio on Monday that England and France were being "hypocritical" in their stated displeasure over settlement expansion. "Europe supported the Palestinian UN move which was a gross violation of the Oslo Accords, so what did they expect from us?" the official asked. The Israeli Foreign Ministry however told media outlets that the reported consideration to recall ambassadors "was never communicated to us...Not threatening, considering or even crossed their minds."

Vice Prime Minister and Strategic Affairs Minister Moshe (Bogie) Ya'alon told Army Radio on Monday that the E1 decision was merely a tit-for-tat move that was directed at the Palestinians, not the international community. "In the run-up to the U.N. vote we were requested to give Palestinian Authority President Mahmoud Abbas a chance to return to the negotiating table so we put on hold some decisions that would have otherwise moved forward in the normal course of events," Ya'alon said. "Once he had already made the U.N. move, which is a clear breach [of past agreements], we decided to remove any impediments on the plans." Ya'alon said he was not aware of any plans by European country to recall its envoy from Israel. "I did not hear of this, either via the Foreign Ministry or the Prime Minister's Office. Therefore I have a hard time believing it is true," he said. Ya'alon added that "We will build in any area where it furthers the interests of Israel, including E1." Ya'alon's comments on E1 signify a shift in Israeli government policy, which has traditionally stayed clear of making waves with the US over the issue of the land between Jerusalem and Maaleh Adumim, which effectively cuts off Ramallah from Bethlehem, two major Palestinian cities.

"Our relations with the U.S. are strategic but that doesn’t mean that we obey their dictates," Ya'alon told Army Radio.

The U.S. has also condemned the Israeli decision to accelerate construction. Washington has long condemned the E1 plan, devised in 1995, as effectively sabotaging any prospect of a peace agreement between Israel and the Palestinians. According to a New York Times article published Saturday, Israel only gave the U.S. "a few hours’ notice of the plan," sparking outrage. In the past, the main points of disagreement between U.S. President Barack Obama and Prime Minister Benjamin Netanyahu have been over construction in Jewish settlements.

While there was no official response to the New York Times report, Defense Minister Ehud Barak said on Sunday that construction in the E1 area has long been on the table but never implemented. "In recent years, all Israeli governments considered it their right to build there." Speaking on Army Radio on Sunday from Washington, where he is attending the Saban Forum 2012, Barak said the Netanyahu government's decision to go ahead with the construction could be expected, because the U.N. vote on the Palestinians came at the "height of the elections, against the backdrop of Abbas' U.N. address [which attacked Israel and blamed it for war crimes]."

Sources at the Prime Minister's Office said Sunday that Israel informed the U.S. of its response well ahead of time.

U.N. Secretary-General Ban Ki-moon also expressed his disapproval of the planned construction near Jerusalem. "Settlements are illegal under international law and, should the E1 settlement be constructed, it would represent an almost fatal blow to remaining chances of securing a two-state solution," Ban said according to a statement posted on the U.N. website Sunday.

"The secretary-general repeats his call on all concerned to resume negotiations and intensify efforts towards a comprehensive, just and lasting peace and urges the parties to refrain from provocative actions. In the interests of peace, any plans for E1 must be rescinded," the statement read.

Prime Minister Benjamin Netanyahu attacked Abbas during Sunday's weekly cabinet meeting, saying the goal of Palestinian Authority president was to destroy the State of Israel. Netanyahu went on to say that the Palestinians "want to exploit diplomacy, including by means of their U.N. bid, to bring about Israel's demise." During the meeting, the government issued an official rejection of the U.N. vote to recognize "Palestine" as a nonmember observer state.

"The Palestinian Authority is waging a campaign questioning the very existence of the State of Israel; whereas we are willing to recognize them [the Palestinians], they have denied our existence; we could have reached a solution a long time ago had they wanted to do so," Netanyahu said.

Netanyahu further said, "The Palestinian Authority's one-sided step at the U.N. constitutes a gross violation of the agreements that have been signed with the State of Israel; accordingly, the government of Israel rejects the U.N. General Assembly decision." Netanyahu confirmed that Israel has decided to step-up construction in Judea and Samaria and in east Jerusalem as a response to the decision.

"Today we are building and we will continue to build in Jerusalem and in all areas that are on the map of the strategic interests of the State of Israel," Netanyahu said, before quoting late Prime Minister Yitzhak Rabin in response to U.N. General Assembly Resolution 3379, which equated Zionism with racism. "The response to the attack on Zionism and the State of Israel must reinforce and underscore the implementation of the settlement plan in all areas in which the government decides regarding settlement," Netanyahu said. "These are not my words. These are the words of Prime Minister Yitzhak Rabin's government and this is the language of the cabinet's 1975 decision."

The decision to build the 3,000 units beyond the 1967 Green Line was made after a host of suggestions and ideas, including dismantling the Palestinian Authority, were debated but ultimately rejected by the Political-Security Cabinet.

During Sunday's cabinet meeting, Strategic Affairs Ministry Director-General Yossi Kuperwasser briefed the ministers on Palestinian Authority incitement against Israelis and Jews over the past several months. Among the noted examples was a picture of Adolf Hitler that was uploaded to the Facebook page of the Ar-Razzi Elementary School in Qalqilya. The image includes the words "I could have killed all the Jews in the world, but spared a few of them so that you know why I killed them." Kupperwasser also presented anti-Semitic cartoons and illustrations that glorify suicide bombers, as well as maps of the region that made no reference to Israel.

"This is additional proof that this is not a dispute over land but a denial of the existence of the State of Israel," Netanyahu said after the briefing. "Their unwillingness to accept a Jewish state in any borders whatsoever is the root of the conflict. When there is a map that shows Palestine over the entire area of Israel, there is a conflict here over the very existence of the State of Israel. The Palestinian Authority is unwilling to come around to accepting the existence of the State of Israel. It is poisoning the Palestinian public. So long as the Palestinian Authority educates the younger generation to hate, how is it at all possible to talk peace?" Netanyahu said.