Israeli Prime Minister Benjamin Netanyahu has ordered the building of 2,000 new housing units for Israelis.
Netanyahu said in a statement that the new construction includes settlements near Jerusalem, which he believes will be part of Israel in a peace accord with the Palestinians.
The announcement came after Netanyahu called a special cabinet session to discuss the granting of full membership to the Palestinians by UNESCO, the UN cultural agency, a move opposed by the United States and Israel.
The Palestinian presidency reacted by saying Israel had decided "to speed up the destruction of the peace process" by accelerating the construction of settlements on land where the Palestinians aim to found an independent state.
Nabil Abu Rdainah, spokesman for President Mahmud Abbas, also described as "inhumane" Israel's decision to temporarily halt transfers of funds to the Palestinian Authority.
compiled from agency reports