Land deal casts diplomatic shadow
Jerusalem has approved more than 900 new apartments in a Jewish development in the city's contested eastern sector, threatening new friction ahead of a White House visit by the Israeli president.
Although it would take years before construction starts, the project in the Gilo district is likely to infuriate Palestinians at an especially delicate diplomatic moment.
Israeli president Shimon Peres is scheduled to meet US president Barack Obama on Tuesday to explore ways to jump-start stalled Israeli-Palestinian peacemaking.
Palestinians have refused to negotiate as long as Israel builds housing for Jews in east Jerusalem and the West Bank, occupied territory that the Palestinians claim for their future state.
Israel says the Palestinians should not impose conditions for talks, and stresses that construction has continued in those areas during previous rounds of negotiations.
Mr Obama, the Palestinians and the rest of the international community consider Israeli construction in the West Bank and east Jerusalem to be illegal settlements.
Israel says the status of east Jerusalem is different because it has annexed the area, made it part of its capital and offered its Palestinian residents citizenship. But the annexation has never been internationally recognised.
Just over a year ago, another building project in east Jerusalem - announced during a visit to Israel by vice president Joe Biden - caused a major diplomatic rift with Washington that took months to mend.
The fate of east Jerusalem, homes to sites sacred to Judaism, Islam and Christianity, is the most explosive issue dividing Palestinians and Israelis.
Israel has ringed east Jerusalem with Jewish neighbourhoods since capturing the territory from Jordan, along with the West Bank, in the 1967 Middle East war. Some 200,000 Jews now live there alongside 250,000 Palestinians.