Israeli media reported earlier that the government had rejected a
request from Washington to freeze the construction work at Gilo.

US President Barack Obama’s Middle East envoy, George
Mitchell, is said to have made the request to Prime Minister Benjamin
Netanyahu at a meeting in London on Monday.

Mr Netanyahu replied that the project did not require government
approval and that Gilo was “an integral part of Jerusalem”, according
to Israel Army Radio.

His spokesman, Mark Regev, declined to comment on the
reports, but repeated Israel’s refusal to include areas annexed to
Jerusalem as part of any accommodation of Mr Obama’s call for
“restraint” in settlement construction.

“Prime Minister Netanyahu… is willing to adopt the
policy of the greatest possible restraint concerning growth in the West
Bank, but this applies to the West Bank,” he told the Reuters news
agency. “Jerusalem is Israel’s capital and will remain as such.”

The US has pressed for a resumption of peace talks,
which were suspended last year, but the Palestinian Authority has
demanded that all settlement construction is halted before it will
again attend.

The BBC’s Tim Franks in Jerusalem says Tuesday’s announcement
represents by far the largest batch of planning approvals for building
on occupied territory since Mr Netanyahu became prime minister.

The 900 housing units, which will be built in the form
of 4-5 bedroom apartments, will account for a significant expansion of
Gilo. The interior ministry said construction work would be unlikely to
start for another three or four years once the plans gained final
authorisation.

A spokesman for Palestinian Authority President Mahmoud Abbas said the
planning approval was “yet another step that shows and proves Israel is
not ready for peace”.

“This step will ruin every single attempt – European or
American – to preserve the peace process,” Nabil Abu Rudeineh said.

Israel’s Peace Now movement, which opposes Jewish
settlement activity, said Mr Netanyahu was “showing again that he is
spoiling any chance to start negotiations by continuing to create new
provocations in Jerusalem”.

“This development is intended to torpedo progress that
is taking place between US and Palestinians and Israelis on renewing
the talks,” said Peace Now’s Hagit Ofran.

The UK Foreign Office also said it opposed the decision on Gilo.

“A credible [peace] deal involves Jerusalem as a shared capital.
Expanding settlements on occupied land in East Jerusalem makes that
deal much harder,” a statement said.

Nearly 500,000 Jews live in more than 100 settlements built on occupied territory in the West Bank and East Jerusalem.