Although it would take years before construction starts, the project in the neighborhood of Gilo will likely infuriate the Palestinians at an especially delicate diplomatic moment. Israeli President Shimon Peres is scheduled to meet Tuesday with President Barack Obama to explore ways to jump-start stalled Israeli-Palestinian peacemaking.

Palestinians have refused to negotiate as long as Israel builds housing for Jews in east Jerusalem and the West Bank, occupied territory that the Palestinians claim for their future state.

Obama, the Palestinians and the rest of the international community consider Israeli construction in the West Bank and East Jerusalem to be illegal settlements.