George Mitchell had been due to meet President Shimon Peres but the trip was put off in what was seen as a calculated snub designed to demonstrate continued US anger.
Washington also suspended top-level contact with Israel as it awaited a formal response to a list of demands set out by Hillary Clinton, the US secretary of state in the wake of the row.
Relations between the two countries were badly damaged last week when Israel announced plans to build 1,600 Jewish homes in the East Jerusalem settlement of Ramat Shlomo.
It left US Vice-President Joe Biden humiliated as he had traveled to the region in the hope of announcing the restart of peace talks between Israel and the Palestinians.
Full story: US envoy George Mitchell delays trip to Israel as settler row escalates – Telegraph