The US policy for the past several decades regarding the peace process and Israel is to harp on housing construction at every opportunity because it somehow threatens a peace process that exists only in the minds of diplomats and not the very Palestinian leaders who are in a position to act on any policy they so choose.
The concentration on Israeli housing projects is disingenuous and plays right into the hands of Palestinians and anti-Israel types who think Israel is making a land grab all while ignoring that Israel has repeatedly withdrawn from lands and housing it has built in the name of peace and with the case of Gaza - getting nothing but a rocket war and terrorism in return.
A fair process would demand that the Palestinians fulfill their obligations under Oslo. That would include eliminating the calls for violence in the mosques like the Friday sermons at al Aqsa. It would mean demanding the release of Gilad Shalit as a good faith gesture. That hasn't been demanded by the US, even though it would be a showing of being an arbiter in good faith.
If the Palestinians don't get their way, they're threatening yet another Intifada. Egypt plays the anti-Israel card claiming that the Israelis are attempting to suffocate the Palestinians (let's just ignore that Egypt has no interest in opening its border with Gaza because they're just as concerned about Hamas terrorism as Israel).
Elsewhere, the UN sent in the EOD teams to take care of unexploded ordnance. They complain that Israel didn't let them go take care of the situation but note that Hamas maintains its own supplies of unexploded ordnance (never used, but waiting for the opportunity - as well as using their own supplies of ordnance to be used in their own IEDs).
At the same time, yet another report surfaces that Hamas used civilians, especially kids, as human shields during Operation Cast Lead. Doubt anyone at the UN lost any sleep over that as they were busy preparing to slam Israel for defending itself against these terrorists.
Who exactly is Israel supposed to have a peace process with? Fatah can't impose its will on Gaza and Hamas is opposed to Israel's existence in a most violent and base fashion. Yet, the diplomats live in a fictional world where dealing by and through the PA trumps the facts on the ground.
The US position on the peace process has been to be the facilitator and to get both sides to engage in a peace process. It's a carrot and stick thing - but Israel mostly sees the stick while the Palestinians usually see the carrot - more money to the PA (in fact - it's the flip side of the same coin as Israel is usually forced to do something to bolster Abbas and the PA, all while undermining Israel's security since Hamas is busy engaging in its regularly scheduled rocket attacks on Israel). The Palestinians are effectively engaging in a triangle offense against Israel, and the diplomats, including the current Administration are playing into it.
The Bush Administration did this to a much lesser extent, but it's been a pattern in effect since the Reagan days, when the US demanded settlement halts for Israel to get loan guarantees (repeated several times since in various forms).
The key to understanding the US position on this is that the symbolism of the settlement construction trumps the reality that the housing can be transferred to whoever is deemed to control that land after final status negotiations are carried out. Some argue that this changes the demographics, but that ignores that what the Palestinians demand is nothing less than the ethnic cleansing of areas that they seek control of all Jews (Israelis).
Gaza was going to end up in Palestinian hands no matter what - and they got it in 2005, and the result has been a disaster for Israeli communities within rocket range. Israel left housing and infrastructure intact, which promptly got damaged and destroyed by Gazans who turned them into terror training and rocket firing facilities. Most Israelis realize that land for peace isn't peace when the party you're supposed to be transferring the land to doesn't want it for any purpose other than engaging in the ongoing war against Israel's existence.