By Matt Spetalnick
WASHINGTON (Reuters) - Israeli Prime Minister Benjamin Netanyahu bluntly told U.S. President Barack Obama on Wednesday that he must make sure that any final nuclear deal with Iran does not leave it at the "threshold" of being able to develop nuclear weapons.
Even as Netanyahu pressed Obama over Iran in White House talks, the president urged the Israeli leader to help find ways to prevent Palestinian civilian casualties like those inflicted in the recent Gaza war between Israel and Hamas militants.
Netanyahu's visit was clouded by word of Israel's approval of the planned construction of more than 2,600 settler homes in mostly Arab East Jerusalem.
The White House said the matter came up in the leaders' closed-door talks and warned that it would draw international condemnation, "poison the atmosphere" with the Palestinians as well as Arab governments and call into question Israel's commitment to peace.
Meeting for the first time in eight months, the two leaders, who have a history of strained relations, avoided any direct verbal clash during a brief press appearance and even seemed in sync over the fight against Islamic State militants.
But they were unable to hide their differences on some of the issues that have stoked tension between them.
Underscoring Israeli misgivings at a critical juncture in nuclear talks between Iran and world powers, Netanyahu made clear that he remains at odds with Obama about the course of international negotiations with Israel's regional arch-foe.
"As you know, Mr. President, Iran seeks a deal that would lift the tough sanctions that you worked so hard to put in place and leave it as a threshold nuclear power," Netanyahu said. "I firmly hope under your leadership that would not happen."
The crux of the U.S.-Israeli disagreement is that Netanyahu wants Tehran completely stripped of its nuclear capability, while Obama has suggested he is open to Iran continuing to enrich uranium on a limited basis for civilian purposes.
While Netanyahu put the emphasis on Iran, Obama was quick to focus on the bloody 55-day Gaza conflict, which ended in August with no clear victor. This followed the collapse of U.S.-sponsored peace talks between Israel and Palestinians in April.
"We have to find ways to change the status quo so that both Israeli citizens are safe in their own homes and school children in their schools from the possibility of rocket fire, but also that we don't have the tragedy of Palestinian children being killed as well," Obama said.
The Obama administration had backed Israel's right to defend itself against Hamas cross-border rocket fire, but also voiced rare criticism of Israeli military tactics as Palestinian civilian casualties mounted.
The conflict killed more than 2,100 Palestinians, mostly civilians, according to the Gaza health ministry. Sixty-seven Israeli soldiers and six civilians in Israel were killed.
THINKING 'OUTSIDE THE BOX'
Netanyahu said he remained "committed to a vision of peace for two states for two peoples," but he did not offer any path toward restarting negotiations.
Instead, he suggested there was a need to "think outside the box" and recruit moderate Arab states to advance peace in the region, though he offered no specifics. Palestinians have dismissed this approach as a bid to circumvent direct talks.
Within hours of the talks, both the White House and State Department blasted Israel's housing decision, reported by the anti-settlement watchdog Peace Now, to move forward on the settler housing project slated for construction since 2012.
White House spokesman Josh Earnest declined to speculate whether disclosure of the settlement plan was timed for Netanyahu's Washington visit.
The Obama administration has repeatedly urged a halt to settlement expansion.
Israel annexed East Jerusalem after its capture in the 1967 war, when the West Bank and Gaza were also seized. Citing Biblical roots, Israel regards all of Jerusalem as its capital, a claim not recognized internationally.
The leaders showed no outward tension as they sat side-by-side in the Oval Office. Both were cordial and businesslike. The last thing the White House wanted was a repetition of a 2011 visit when Netanyahu lectured Obama on Jewish history.
But even with calm words, there was little doubt about the lingering differences.
Netanyahu was expected to use the Oval Office meeting to reiterate the warning he issued in his speech at the United Nations this week – that a nuclear-armed Iran would pose a far greater threat than Islamic State fighters who have seized swathes of Syria and Iraq. An Iranian U.N. delegate accused Netanyahu of "propagating Iranophobia and Islamophobia."
Though Israel backs Obama's efforts to forge a coalition to confront Islamic State fighters in Iraq and Syria, some Israelis fear that world powers could go easy on Shi'ite Iran's nuclear program so it will help in the fight against the Sunni Islamist group.
"The president made clear to the prime minister that regional events, including the need to destroy ISIL, won't change our calculus on this issue," said White House spokeswoman Bernadette Meehan. "We must see concrete, verifiable steps that Iran's program is exclusively peaceful."
Netanyahu has cast Iran's nuclear ambitions as an existential threat to Israel. Iran denies it is seeking nuclear weapons. Israel is widely assumed to have the Middle East's only atomic arsenal.
Iran and six world powers ended 10 days of talks in New York last week that made little progress toward a long-term agreement by a November 24 deadline.
(Additional reporting by Steve Holland and Lesley Wroughton in Washington and Dan Williams and Jeffrey Heller in Jerusalem; Editing by Ken Wills and Dan Grebler)