Israel has approved the construction of 238 homes in Jewish neighbourhoods in east Jerusalem, bringing an end to an unofficial building freeze in the traditionally Arab sector of the city.
The move threatens to derail peace talks with the Paestinians already stalled over the broader fate of West Bank settlements.
The Israeli Housing Ministry's announcement that developers would be allowed to bid for contracts to build new homes in the neighbourhoods of Ramot and Pisgat Zeev drew swift condemnation from Palestinian negotiators.
US-brokered peace talks, which began in early September, are deadlocked over a Palestinian demand that Israel extend a slowdown on settlement construction that expired last month.
The Palestinians are threatening to quit the negotiations unless Israel reinstates the building restrictions.