JERUSALEM | Israeli Prime Minister Benjamin Netanyahu insisted Thursday that all of Jerusalem will always remain under Israeli sovereignty, taking a hard line on a key Israeli-Palestinian peace issue just hours after his forces removed an unauthorized settlement outpost in the West Bank.

The twin moves came a day after Mr. Netanyahu returned from talks in Washington, where President Obama backed creation of a Palestinian state and urged an end to Jewish settlement construction in the West Bank, setting up a potential confrontation between Israel and the U.S....