According to the Channel 2 report, the angry exchanges began when the Israeli team working with the American delegation asked whether Netanyahu could accompany Trump when he visits the Western Wall, a key expected stop on his May 22-23 visit to Israel and the West Bank.
Since taking office in January, Trump has shown signs of shelving his campaign pledge to move the embassy from Tel Aviv, while vowing to do what is necessary to clinch a Middle East peace agreement.
Just days before President Donald Trump's first visit to Israel, the U.S. -Israel relationship is undergoing its first major crisis in the Trump era.
Netanyahu said that "not only would moving the embassy not harm the peace process, but to the contrary".
At this stage, he will work out of the US Embassy in Tel Aviv and will live in the ambassador's residence in Herzliya.
Israeli Prime Minister Benjamin Netanyahu asked to join President Trump at the site during Trump's visit to Israel, but US officials preparing the president's trip rebuffed the request, according to Channel 2 TV in Israel. The Israeli government clarified with the American government officials that the Western Wall is considered sacred territory and is under Israeli sovereignty.
"It's not your territory", Israeli television quoted the unnamed official as having said.
While in Israel he is expected to announce confidence building measures for brokering a peace deal under new terms, where the US would recognize all of Jerusalem as Israel's capital in exchange for throwing support behind the creation of a Palestinian state in the West Bank and Gaza.
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Israeli Prime Minister Benjamin Netanyahu released his harshest statement yet to the Trump administration yesterday, correcting the president on Jerusalem and urging him to shatter "the Palestinian fantasy that Jerusalem is not the capital of Israel".
Earlier this month, White House social media director Dan Scavino Jr. said on Facebook that the president would meet with Palestinian Authority President Mahmoud Abbas in "Palestine".
Prior administrations of both parties have chosen to ignore a 1995 Republican-backed law ordering the embassy's move in accordance with official State Department policy that the status of East Jerusalem must be determined by peaceful negotiations.
Among the main bones of contention are Netanyahu insisting that the Palestinians recognise Israel as the nation state of the Jewish people and the Palestinians calling for a halt to Israeli settlement building in the West Bank.
New US ambassador to Israel David Friedman visits the Western Wall after arriving in the Jewish state on Monday. Israel claims the entire city as its undivided capital.
"The sources say the Las Vegas billionaire doesn't buy the argument that the embassy move should be contingent on the peace process".
The suggestion that the Western Wall became a holy site for Jews only after we retook the area in 1967 is preposterous.