The two sides are reportedly close to a deal ahead of a Tuesday deadline, but diplomatic sources caution that an agreement could still fall apart. Shipping uranium to Russia is a point of contention.
The Israeli leader ruffled feathers during the bruising campaign. Since then, he has sought to make amends. In the latest move, Israel is handing over money it had withheld from the Palestinians.
The president says Israeli Prime Minister Benjamin Netanyahu has made it clear that there will be no two-state solution. Obama says the U.S. now has to re-evaluate its Israeli-Palestinian policy.
The Wall Street Journal says Israel spied on the talks and passed on the information to U.S. lawmakers in the hopes of undermining the deal. Israel denies spying on the talks.
The Israeli leader, in an attempt to get his supporters to vote last week, warned that Arab citizens were voting "in droves" to unseat his government. The comments were widely criticized.
If the Israeli leader follows through on his campaign pledges, he could face increased friction with the Palestinians, the Obama administration and the international community.
Two exit polls show Prime Minister Benjamin Netanyahu's Likud party and Isaac Herzog's Zionist Union each with 27 seats in the Knesset. Another shows Likud with 28 and the Zionist Union with 27.
Much of the new building in the territory involves Jewish settlements. The Palestinians now have a new city, but the project has been slowed because until recently Israel did not allow a water hookup.