Stung by the de facto recognition of Palestinian sovereignty in a UN General Assembly vote last month, Israel announced it would expand settlements in the occupied West Bank including East Jerusalem.
An Israeli interior ministry planning committee on Monday gave preliminary approval for 1,500 new homes in the Ramat Shlomo settlement.
The panel will now start discussing plans for another 4,500 homes in two other settlements, Givat Hamatos and Gilo, in back-to-back sessions that could run into next week, ministry spokesman Efrat Orbach said Tuesday.
Israel counts the three settlements as part of its Jerusalem municipality even though they are on West Bank land seized in the 1967 Middle East war.
Palestinians see the settlements as obstacles to achieving a viable state with a capital in East Jerusalem.
"Settlement activity is unilateral and is completely adverse to the continued viability of a two-state solution and the possibility for our people to continue to exist. It's an attack on our people's right to life, essentially," Palestinian Authority Prime Minister Salam Fayyad said Monday.
The United States and European Union condemned the plans.
"We are deeply disappointed that Israel insists on continuing this pattern of provocative action. These repeated announcements and plans of new construction run counter to the cause of peace," US State Department spokeswoman Victoria Nuland told reporters.
"Israel's leaders continually say that they support a path towards a two-state solution yet these actions only put that goal further at risk.
"So we again call on Israel, and the Palestinians, to cease any kinds of counterproductive, unilateral actions and take concrete steps to return to direct negotiations," Nuland said.
British Foreign Secretary William Hague called the Israeli decision "a serious provocation and an obstacle to peace."
"If implemented, it would make a negotiated two-state solution, with Jerusalem as a shared capital, very difficult to achieve," he said.
"We urge Israel to reverse this decision and take no further steps aimed at expanding or entrenching settlement activity."Netanyahu deputy defends
The settlements are illegal under international law and Western powers have been especially troubled by Israel's declared intent to build in E-1, a wedge of land between East Jerusalem and the West Bank where it had previously held off under US pressure.
Israeli Vice Prime Minister Moshe Yaalon said the expansion of the Jerusalem-area settlements was a resumption of plans put on hold while Western powers tried to persuade Abbas to abandon the Palestinians' UN status upgrade.
"We said, 'We won't build, so as not to give Abu Mazen (Abbas) an excuse to go to the UN and an excuse not to come to the table,'" Yaalon told Army Radio, "After he did what he did ... we removed these restrictions from ourselves."
He dismissed the international furor. "The world automatically condemns any construction over the Green Line, and then moves on," Yaalon said, referring to the West Bank boundary.
"We will continue to build in accordance with the state of Israel's strategic interests," he added.
Critics in Israel have suggested Israeli Prime Minister Benjamin Netanyahu is pandering to the right-wing electorate as he prepares to run for re-election in a Jan. 22 ballot.
JERUSALEM (Reuters) -- Israeli officials said they would press on with plans this week to build 6,000 homes for settlers on Palestinian land, defying criticism from Western powers who fear the move will hit already faint hopes for a peace accord.