Obama is unlikely to  impose sanctions because Netanyahu enjoys the full support of Congress.

Israeli Prime Minister Binyamin Netanyahu did not need to boost his domestic political credibility by responding to the Palestinian UN upgrade to statehood by constructing 3,000 new homes for Jewish colonists in the West Bank and East Jerusalem.

His Likud-Beiteinu bloc is assured an increased majority in the Knesset in the January 22nd parliamentary election. His right-wing constituency opposes negotiations with the Palestinians and he has shown himself to be a warrior by waging an eight-day military campaign against Hamas-ruled Gaza. Netanyahu had four very good reasons to expand colonisation.He sought to use “facts-on-the-ground” to defeat on the territorial plane the Palestinian state project which the UN General Assembly had formally endorsed on November 29th by voting to recognise Palestine as a “non-member observer state.”

He told Palestinian President Mahmoud Abbas that this state-defined as comprising East Jerusalem, the West Bank and Gaza - does not have the main attribute of a state: control over its own territory. Therefore, Palestine is a “virtual” state which can only emerge on the ground if Abbas negotiates with Israel on Israel's terms. Netanyahu made it clear that he continues to reject Abbas' demands that Israel halt colonisation and cede most of the land it occupied in 1967. If Abbas were to drop these demands and resume talks with Israel he would lose Palestinian support because he has been negotiating without result for 19 years while Israel has trebled the number of its colonists to half a million and laid claim to all of East Jerusalem and 60 per cent of the West Bank.

Determined to humiliate

Netanyahu also sought to remind the UN that Israel remains in physical occupation of all Palestine and send the message that backing Palestinian ambitions for statehood has a price. Finally, Netanyahu is determined to hamstring and humiliate US President Barack Obama before he begins his second term in the belief that once crippled and cowed, Obama will not dare challenge Israel on any issue.

Writing in the Israeli liberal daily Haaretz, Chemi Shalev revealed that Netanyahu's decision to proceed with construction in the area designated as E-1 between East Jerusalem and the Israeli colony of Ma'aleh Adumim deep in the West Bank is meant as a response to Obama's refusal to reaffirm the 2004 Sharon-Bush letter on settlement blocs.

In this letter, US President George W Bush told Israeli Prime Minister Ariel Sharon that it would be “unrealistic to expect that the outcome of final status negotiations [with the Palestinians] will be a full and complete return to the armistice lines of 1949” due to “new realities on the ground, including existing Israeli population centres.”

This amounted to an assurance that Israel would be permitted to annex major settlement blocs constructed, illegally, in East Jerusalem and the West Bank. Israel would give Palestinians equivalent territory, probably, in the Negev along the Gaza border.
Netanyahu has, reportedly, told the Obama administration that Israel “no longer” feels “bound” by a 2009 commitment to refrain frombuilding in E-1. Former US ambassador to Israel Dan Kurtzer told Haaretz that the Israelis were “waiting for an opportunity to do this, that it was designed to provoke anger in the administration, and that they picked what they thought was a convenient moment.”

E-1 “is not just another few houses in Jerusalem or another hilltop in the West Bank,” Kurtzer told The New York Times. “This is one of the most sensitive areas of territory, and I hope the United States will lay down the law.”

Since the 1990s, he observed, the US has urged Israel not to construct Jewish homes in this area because a colony there would cut off East Jerusalem, which Palestinians consider their capital, from its West Bank hinterland and bisect the West Bank, finishing off any prospect of creating a contiguous, viable Palestinian state.

Obama is unlikely to talk tough or impose sanctions because Netanyahu enjoys the full support of Congress, particularly the House of Representatives which the president needs to cultivate to pass legislation and fund programmes initiated during his second term.

However, Obama could encourage Europe to take a firm stand against Netanyahu's policies. Fourteen members of the 27-member European Union (EU), including France, Italy and Spain, voted in favour of Palestine in the General Assembly, one (the Czech Republic) against, and the rest abstained.

Since the EU is Israel's largest trading partner, the bloc could suspend its 1995 association agreement with Israel which gives Israeli goods and produce preferential treatment, or member states could insist that Israel label settlement exports as such rather than as goods of Israeli origin.  This would encourage consumers to shun them.
However, in an article in The Guardian, former Irish President Mary Robinson and former Finnish President Martti Ahtisaari accused the EU of a “lack of coherence” for failing to back up verbal support for a two-state solution to the Palestine-Israel conflict with action against Israel's colonisation of the land belonging to the Palestinian state.