It was another flare-up in US-Israeli relations and surfaced as Israeli Prime Minister Benjamin Netanyahu neared the end of a troubled visit to Washington.
Netanyahu offered no concessions on an earlier plan to build 160,000 homes for Jews in the disputed part of the city. Taking a hard line, he is insisting that Jerusalem is Israel's capital and not a settlement.
An aide to Netanyahu said the prime minister was caught off guard by the announcement on Wednesday that the Jerusalem municipality has approved the 20 new apartments for Jews.
Relations between the US and Israel have deteriorated to their lowest level in decades.
Announcement of the new and more modest plan for 20 apartments came as Netanyahu held closed-door meetings with US officials. He saw US peace envoy George Mitchell on Wednesday, according to US officials.
Israeli officials traveling with Netanyahu refused to discuss his schedule, even declining to say whether he remained at his Washington hotel during the day.
Mitchell returned to the US on Tuesday from talks with Palestinian leader Mahmoud Abbas on the West Bank, apparently without agreement on when the Palestinians would be willing to open a new round of US-mediated talks.
While Palestinians claim east Jerusalem, Netanyahu's government has refused to back off steady expansion of Jewish neighborhoods in the majority Arab city section.
US officials said discussions about the peace talks continue, and Mitchell plans to return to the region after the Jewish Passover holidays, which begin next week.
During Netanyahu's frosty visit, "the US made clear it is looking for steps to increase confidence and show commitment to the process," said Mark Toner, the deputy State Department spokesman.
In an exceptional step, no photographs of Netanyahu's meeting Tuesday with President Barack Obama at the White House were permitted, and neither side has provided a substantive account of the session.
Obama and Netanyahu initially conferred for about 90 minutes in the Oval Office, a half-hour longer than scheduled. After that meeting, Obama retired to the residence while Netanyahu stayed behind in the White House to consult with his staff in the Roosevelt Room, a White House official said.
Netanyahu then asked for a second meeting with Obama, who returned to the Oval Office for another 35 minutes of talks with the prime minister, said the official, who spoke on condition of anonymity to discuss the sensitive diplomatic issue.
Although they met for a total of two hours, the White House did not issue a formal statement on what was discussed in either meeting.
"I think it comes as a great shock to you and me, but not everything the president does is for the cameras and for the press," said Robert Gibbs, the White House spokesman.
Gibbs would say only that the discussions were "honest and straightforward" and that Obama had urged Netanyahu to take a series of steps to build confidence in Israel's ability to take part in peace talks with the Palestinians. He would not elaborate about those steps.
Meanwhile, a White House spokesman, Tommy Vietor, said the White House continues to believe that Israeli building in Jerusalem is destructive to the Mideast peace process. He said the US is asking for "clarification" of the latest building plan, and he urged both the Israelis and Palestinians to refrain from acts that could undermine trust.
