"After a series of consultations with the prime minister, Housing Minister Zeev Boim has approved the relaunching of construction in Givat Zeev," the ministry said in a statement.The move was swiftly denounced as hampering efforts to advance faltering peace talks that Israelis and Palestinians revived to much fanfare under US stewardship in late November, but that have been stagnant since.
"We condemn in the harshest terms this decision," senior Palestinian negotiator Saeb Erakat told AFP.
"We consider that with this decision, Israel wants to demolish the peace process and demolish the international efforts to advance the peace process," he said.
"We ask the American administration to... pressure Israel to reverse this decision."
The head of Israel's main anti-settlement group Peace Now, Yariv Oppenheimer, echoed the sentiment.
"This is a scandalous decision that will affect the negotiations with the Palestinians," he told AFP. "This government, which has pledged to dismantle settlements, has done nothing but reinforce them."
Ongoing Israeli settlement activity has been one of the major reasons why the peace talks that the two sides relaunched at a US conference more than three months ago have made little progress.
The Palestinians have demanded that Israel halt all settlement activity in the occupied West Bank -- the larger half of their promised state -- and the annexed east Jerusalem, which they hope to make their nation's capital.
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Olmert has pledged to not construct any new settlements and to dismantle unauthorised outposts, but has repeatedly emphasised that Israel did not intend to halt expansion of settlements in east Jerusalem or those blocs in the West Bank that it intends to keep under any peace deal.
The expansion project discussed by Boim and Olmert foresees the eventual building of 750 new housing units in Givat Zeev, but Sunday's decision gives the green light for the immediate construction of some 200 new units, Israeli media said.
A senior Israeli official on Sunday confirmed to AFP last week's reports that Defence Minister Ehud Barak has struck a deal with settler groups to dismantle up to 26 wildcat outposts in the West Bank in return for expanding main settlement blocs, including Givat Zeev.
"Barak authorised construction in settlement blocs in a secret meeting two weeks ago as part of a comprehensive deal with the settlers on the evacuation of illegal outposts," the official said on condition of anonymity.
Givat Zeev is located north of Jerusalem and south of the West Bank political capital of Ramallah. Founded in 1981, it currently has 11,000 mostly secular residents.
More than 280,000 Israelis currently live in settlements in the West Bank, according to government figures, with another 200,000 estimated to live in settlements in east Jerusalem.
There are also more than 100 wildcat outposts -- those unauthorised by the Israeli government -- scattered throughout the West Bank.
The international community considers all Israeli settlements on occupied Palestinian land illegal.
© 2008 Agence France Presse