Israel is continuing with plans for two major settlement projects in east Jerusalem even amid warnings the Palestinian government could pursue war crimes charges if it refuses to stop.
International anger over Israeli settlement construction has snowballed in recent days, following last week's UN recognition of a state of Palestine - in lands Israel occupied in 1967 - as a non-member observer in the General Assembly.
Israel retaliated for the UN recognition of Palestine in the West Bank, Gaza and east Jerusalem by announcing plans to build 3,000 homes in settlements on war-won land, as well as preparations for construction of an especially sensitive project near Jerusalem, known as E-1.
The Israeli reprisal has thrust Israel's strongest Western allies into an unusually harsh showdown with them. Australia became the latest to summon Israel's ambassador in protest, a day after five European countries took such a step Israel's deputy foreign minister Danny Ayalon played down the international response, saying Israel is not happy about it but that "it's not the end of the world."
UN recognition could enable the Palestinians to gain access to the International Criminal Court and seek war crimes charges against Israel for its construction of settlements for Jews on war-won land.
The E-1 project, in particular, is seen as a threat to any Israeli-Palestinian partition deal. It would include more than 3,500 homes, cut off east Jerusalem from the rest of the West Bank and drive a wedge between the northern and southern West Bank, eroding the possibility of a viable Palestinian state.
A senior Palestinian aide said that "by continuing these war crimes of settlement activities on our lands and stealing our money, Israel is pushing and forcing us to go to the ICC."
Israeli settlement construction lies at the heart of a four-year breakdown in peace talks, and was a major factor behind the Palestinians' UN statehood bid. Since 1967, half a million Israelis have settled in the West Bank and east Jerusalem.
Israel, meanwhile, is moving forward with two major construction plans in east Jerusalem, where the Palestinians hope to establish their capital. In the next two weeks, an Interior Ministry planning committee is holding deliberations on these projects.
One - a 1,600-apartment development - touched off a diplomatic crisis with the US in 2010 when the ministry gave it crucial preliminary approval during a visit by vice president Joe Biden, who was broadsided by the news.