German Chancellor Angela Merkel said Thursday afternoon following a meeting with Prime Minister Binyamin Netanyahu, that the two were not in agreement over a housing project being planned in an area on the outskirts of Jerusalem.

“On the question of settlements, we are agreed that we are not agreed,” Merkel told a joint news conference with Netanyahu in Berlin, according to AFP.

However, the two countries did agree that “one-sided measures must be avoided in the Middle East,” in a reference to the Palestinian Authority’s recent bid for upgraded status at the United Nations as a nonmember observer state.

Germany abstained during a vote on the resolution, which was approved, granting the PA de facto recognition as a sovereign state and in effect allowing the entity to evade the necessity of final status negotiations with Israel that were mandated in the Oslo Accords signed by both parties in the early 1990s.

Netanyahu told reporters at the joint news conference that he has no doubt about Germany’s commitment to Israeli security. “Germany, under your leadership, has been a true friend of the State of Israel; its efforts for Israel’s security are deserving of all esteem,” Netanyahu told Merkel. “We will continue to maintain and tighten the deep relations between us.”

Nevertheless, Merkel affirmed that Germany and Israel were in disagreement over Israel’s continued construction in Judea, Samaria and parts of Jerusalem restored to the capital during the 1967 Six Day War.

More specifically, the two disagree over last week’s Cabinet vote, and this week’s approval by Israel’s military Civil Administration, of plans to develop the “E1” area between Jerusalem and Maale Adumim.

The 3-mile (5-kilometer) strip of land has been at the center of controversy for years. Plans for construction of housing in the area have been on hold since 2005 in deference to political pressure from successive U.S. administrations.

The Palestinian Authority insists that if housing is built in the area, it will be “the end of the peace process,” claiming it will seal off access to the capital by Arabs in Judea and Samaria and also end their dreams of including nearly a third of Jerusalem as the capital of their own planned-for state.