Israel has announced plans to build 1,500 new settlement homes in East Jerusalem, the part of the city occupied by Israel in 1967 but claimed by Palestinians, just hours after it freed 26 Palestinian prisoners as part of a deal to restart peace talks.
Interior Ministry spokeswoman Lital Apter said Israel also plans to build an archaeology and tourism site near the Old City, home to Jerusalem's most venerated holy sites.
Israel had first announced the development plans in 2010 during Vice President Joe Biden's visit to Israel, sparking a diplomatic rift with Washington that took months to mend.
Settlements built on territories occupied by Israel in the war of June 1967, including East Jerusalem, are deemed illegal by the United Nations, and Obama Administration Middle East adviser Philip Gordon reiterated on Tuesday that "the United States does not accept the legitimacy of continued Israeli settlement expansion."
U.N. Secretary-General Ban Ki-moon praised Israel's release of the prisoners, but said in a statement that settlement activity was "contrary to international law and constitutes an obstacle to peace."
An estimated 500,000 Israelis currently live in settlements in the occupied territories that are also home to 2.5 million Palestinians.
Yousef Munayyer, executive director of Washington-based think tank The Palestine Center, told Al Jazeera: "Anytime that Israel is expanding settlements, it's doing tremendous damage — not only to what is left of the diplomatic process, but also to the real lives of people who are actually utilizing the property and land."
The latest move is seen by some as an attempt by Prime Minister Benjamin Netanyahu to make up for the prisoner release, for which he has been sharply criticized by hardliners within Israel.
The prisoners had been jailed on charges ranging from throwing rocks to killing Israelis in bombings and gun attacks. There are roughly 5,000 Palestinian prisoners currently held in Israeli jails.
Plans to build the homes in East Jerusalem emerged in Israeli media almost immediately after Israel began freeing 21 prisoners to the West Bank and another five to the Hamas-run Gaza Strip overnight. The announcement was widely interpreted as a move to assuage criticism Israeli criticism of the prisoner release. The pro-settler Jewish Home party of Netanyahu's Economy Minister Naftali Bennett, who opposed the prisoner release, said in statement quoted by the New York Times that "the attempt to link the building with the release of murderers is cynical and morally wrong," adding that "this appears to be a despicable attempt to release murderers and tarnish the settlement enterprise."
Palestinian President Mahmoud Abbas's spokesman, Nabil Abu Rudeina, said the settlement plan "destroys the peace process and is a message to the international community that Israel is a country that does not respect international law."
Under a deal brokered by Secretary of State John Kerry, the Palestinians agreed to resume talks in late July after Israel agreed to the release of 104 of the longest-serving Palestinian prisoners over a period of months.
The Palestinians had previously refused to resume negotiations unless settlement construction was halted. The Obama administration had also initially pressed the Israelis to freeze settlement activity, but it backed down in the face of Netanyahu's refusal, and insistence on unconditional talks.
According to the Israeli activist group Peace Now, which tracks settlement activity, construction on new homes in Israeli settlements in the occupied West Bank spiked by 70 percent in the first half of 2013. Construction began on 1,708 settlement homes from January to June of this year, compared with 995 during the same period in 2012.
Moreover, it said that 61 percent of the construction took place in isolated settlements outside larger settlement blocs that Israel has said it intends to keep in any future land-for-peace deal.
The Palestinian leadership involved in negotiations, however, argues that settlement construction undermines the territorial viability of a future Palestinian state.
Munayyer said the release of prisoners was a commitment Israel made in an agreement in 1999.
"Fourteen years later, Israel fulfilling a commitment it made only to break another commitment with the continued expansion of settlements."
Ehab Zahriyeh contributed to this report. With wire services