Obama in his first months in the White House called on Israel to totally freeze settlements as they'd agreed to under 2003's Roadmap to Peace, to which Israel responded that they needed the space as a growing country. Plus, they added, they'd slowed construction considerably since 2005.
The issue has continued to plague Obama and Netanyahu over the years, even as the two have cooperated on other issues, like setting up the Iron Dome anti-rocket defense system. In 2011, the Obama administration even used its first veto at the UN to strike down a resolution condemning Israeli settlements. But things have only escalated as more right-wing parties like Jewish Home, a pro-settler party, have been folded into Netanyahu's governing coalition.
Timing's also been an issue: In 2010, the Israelis announced a new block of 1,600 housing units in East Jerusalem, whose residents are mostly Palestinian, just as Vice President Joe Biden was visiting. And earlier this year, an entirely new settlement in the West Bank was approved just weeks after a $38 billion assistance package was signed between the US and Israel.