Jerusalem municipality on Wednesday approved plans for another 130 housing units in Gilo, a settlement neighbourhood in the annexed eastern sector of the Holy City, a city councillor told AFP.
Pepe Alalu of the left-wing Meretz party said the district planning committee had given the green light to a project to build 130 homes in three 12-storey tower blocks on the eastern outskirts of Gilo which lies just a few kilometres (miles) north of Bethlehem.
"An agreement has been reached for construction of 130 apartments in three towers of 12 storeys each," he told AFP, saying it was the second stage of approval meaning construction was likely to begin "in about three years."
The Gilo project received initial approval in November last year, in a move the Palestinians said was an attempt to further isolate Bethlehem from east Jerusalem.
Wednesday's approval did little to improve the mood between Israel and the Palestinians, who have not sat down for face-to-face talks for more than a year after direct negotiations collapsed following a dispute over settlements.
"I guess this is the New Year message that the government of Israel is sending us for 2012: 'We will continue destroying the peace process and killing the two-state solution through continuing and escalating settlement activity,'" remarked Palestinian negotiator Saeb Erakat.
"The Quartet and the international community must hold the government of Israel fully responsible for these policies if they want to save the peace process and the two-state solution," he said.
The Middle East Quartet, which groups top EU, US, UN and Russian diplomats, has been badgering the two sides to return to direct negotiations with next to no success, with each party blaming the other for sabotaging peace efforts.
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Israel's plans for new settler homes are often condemned by the international community but such criticism appears to have very little or no effect in halting the burgeoning settlement enterprise.
Last week, Britain, France, Germany and Portugal issued a joint statement condemning Israel's accelerated settlement building, saying it sent a "devastating" message, and urged the Jewish state to reverse the plans.
On November 1, Israel's inner cabinet decided to speed up construction of homes for Jews in Arab east Jerusalem and in other nearby settlements to punish the Palestinians for winning membership in the UN cultural agency, UNESCO.
Since then, Israel has issued announcements for 2,057 new homes in Arab east Jerusalem and 1,241 in the West Bank, official figures show.
Israel's settlement building is one of the most intractable disputes of the conflict with the Palestinians and has frequently floored efforts to broker a peaceful solution.
Direct talks broke down in autumn 2010 after Israel failed to extended a temporary freeze on new West Bank construction with the Palestinians refusing to talk unless they renewed it and also extended the ban to east Jerusalem.
More than 310,000 Israelis live in settlements in the occupied West Bank, and the number is constantly growing.
Another 200,000 live in a dozen settlement neighbourhoods in east Jerusalem, which was captured by Israel in 1967 and annexed in a move never recognised internationally.
The international community considers all settlements in territories occupied by Israel since June 1967 to be illegal, whether or not approved by its government.