As of the Android SDK v15, along with Eclipse 3.7.1, Java 7 is not supported for Android development. Setting the source compatibility to 1.7 mandates setting the generated .class file compatibility to 1.7, which leads to the following error by the Android compiler:
Android requires compiler compliance level 5.0 or 6.0. Found '1.7' instead. Please use Android Tools > Fix Project Properties.