The meeting was called in the wake of Israel's plan to construct 1,600 new housing units in east Jerusalem, which was announced during US Vice President Joe Biden's visit to Israel.
During the meeting, Deputy Secretary of State James Steinberg harshly criticized Israel's conduct and called for trust-building steps that would allow US special envoy George Mitchell to return to the region and commence talks with the Palestinians.
Meanwhile, officials in Washington have admitted that the latest row between Israel and the US, over the Jerusalem construction plans, amounts to a crisis.
As intense contacts with Washington continue, senior Israeli officials estimated that the crisis holds "strategic significance" and is being fanned by senior US officials and by the fury of President Barack Obama himself.
In conversations with Italian Prime Minister Silvio Berlusconi and German Chancellor Angela Merkel earlier, Prime Minister Benjamin Netanyahu said he expected the latest row to end following an apology he issued, in coordination with VP Biden himself.
However, it appeared the PM has underestimated the extent of the disagreement with the US Administration.
PM to form new committee
On Friday, PM Netanyahu was harshly reprimanded on the phone by Secretary of State Hillary Clinton. Saturday evening, the prime minister convened the forum of top seven government ministers, apparently to discuss the tensions vis-à-vis the US.
The PM has ordered all government ministers not to submit to interviews or address the issue of Jerusalem and the developing crisis.
Meanwhile, following the ill-timed announcement of the plan to build new housing units, which coincided with VP Biden's visit to Israel, PM Netanyahu has decided to form a committee comprising senior officials in the aims of preventing such mishaps.
The new committee will be responsible for establishing procedural guidelines to prevent the reoccurrence of similar incidents in the future.
The team will be headed by Director- General of the Prime Minister Office Eyal Gabai. Other members will include the Interior Ministry director-General, the Housing Ministry director-general and the Jerusalem Municipality director general.
Roni Sofer contributed to the report