U.S. Secretary of State Hillary Clinton called Wednesday for an open and transparent dialogue in Egypt amid a deepening political crisis over sweeping powers adopted by President Mohamed Morsi.

"The upheaval we are seeing now once again in the streets of Cairo and other cities indicates that dialogue is urgently needed," Clinton told journalists at the end of a two-day NATO foreign ministers meeting in Brussels.

An Israeli plan to build new settler homes in a sensitive area near Jerusalem passed a first hurdle Wednesday, sparking fury from the Palestinians, who said building there would end all hopes of peace.

Israel's plan for construction in a strip of West Bank land outside Jerusalem called E1 has sparked a major diplomatic backlash, with experts warning it could wipe out hopes of establishing a viable Palestinian state.

Hungary on Wednesday became the latest country to close its embassy in Syria due to security concerns.

"Due to the situation in Syria, the Hungarian Embassy in Damascus has suspended its activities as of December 5, 2012, and its diplomats have left the country," the foreign ministry said on its website.

Israeli plans to build new settler homes near Jerusalem, which have triggered a diplomatic outcry, were presented Wednesday to a planning committee in their first step forward in seven years, an official said.

Israel is facing mounting international pressure over the proposal to build at least 3,000 new homes, including in a corridor of West Bank land where observers say construction could wipe out hopes of establishing a viable Palestinian state.

Kuwaiti Emir Sheikh Sabah al-Ahmed al-Sabah on Wednesday asked the outgoing prime minister to form a new government following polls boycotted by the opposition, state media said, after a second night of street protests.

Sheikh Jaber Mubarak Al-Sabah, a senior member of the ruling Al-Sabah family, submitted the resignation of his five-month-old cabinet on Monday, as required by the constitution after weekend polls.

Supporters and opponents of Egypt's President Mohamed Morsi lobbed firebombs and rocks at each other Wednesday as their standoff over his expanded powers and an Islamist-drafted constitution turned violent and left two people dead.

Bloodied protesters were seen being carried away as gunshots could be heard and the fierce political rivals torched cars and set off firecrackers, before riot police were deployed in a bid to end the confrontations.

Warplanes on Wednesday pounded suburbs of Damascus as regime forces fought to reclaim rebel-held areas of the capital, the Syrian Observatory for Human Rights said.

The Britain-based watchdog, which uses a countrywide network of activists and doctors to compile its tolls, said at least 123 people were killed on Tuesday, including some 30 in and around Damascus.

Iran's Revolutionary Guards are telling the United States to "recount" the drones in its fleet as they insist that -- despite U.S. denials -- they captured a small U.S. unmanned spy plane over Gulf waters, Iranian media said Wednesday.

"Its capture is not an issue the Americans can easily refute," Guards spokesman Brigadier General Ramezan Sharif was quoted as saying.

Two Russian warships have made a rare call at Russia's controversial Mediterranean naval base in Syria to resupply and refuel, reports said on Wednesday.

The landing ships Novocherkassk and Saratov docked in the port of Tartus for several hours but their crews did not go ashore, the Interfax and ITAR-TASS news agencies reported.

Egyptians have taken their protests against Islamist President Mohammed Morsi to the gates of his palace, demanding his ouster in scenes not witnessed even during demonstrations that toppled Hosni Mubarak.

An AFP photographer said hundreds of protesters were camped in front of the Itihadiya presidential palace Wednesday morning after it had been besieged the previous night by vast anti-Morsi crowds furious at a November 22 decree expanding his powers.