The cabinet announced a plan for thousands of new settlement homes in the West Bank on Wednesday as Washington voiced readiness to back de facto Israeli annexations in the contested territory.
U.S. Secretary of State Mike Pompeo plans to visit Israel next week, a source said, a sign that Pompeo is weighing in on a territorial issue that has been a centerpiece of Prime Minister Benjamin Netanyahu's coalition-building efforts.
Prime Minister Netanyahu announced his intention to bring the question of extending Israeli sovereignty over the West Bank and the Jordan Vally to the Cabinet on July 1 as agreed in his coalition deal with his rival-turned-ally Blue & White party leader Benny Gantz.
Fresh construction for the settlement of Efrat was approved on land that could accommodate "around 7,000 housing units", Defense Minister Naftali Bennett's office said in a statement.
"The building momentum in the country must not be stopped, even for a second," tweeted Bennett.
The United States has offered to recognize Israeli sovereignty in the West Bank as part of a proposed peace plan unveiled in February, cited by its initiator - U.S. President Donald Trump - as "The Deal of the Century", which includes a call for negotiations on a Palestinian state in up to 70% of the territory.
"Sovereignty in Judea and Samaria [the West Bank] and the [Jordan] Valley is an Israeli decision. We are ready," U.S. Ambassador to Israel David Friedman was quoted as saying.
Friedman reiterated a call for Israeli-Palestinian peacemaking in a separate comment.
"The expectation is that the prime minister will agree to negotiate and, if the Palestinians show up, he will negotiate in good faith based on this (Trump) plan," said Friedman.
The Palestinians claim that the plan is biased against them, and have boycotted Washington's mediation efforts since it recognized Jerusalem as Israel's capital in late 2017.
"The Trump Administration's annexation plan endorses everything that the illegal Israeli colonial-settlement enterprise is about: A racist narrative, violations of international law and the perpetuation of the denial of Palestinian rights," Palestinian official Saeb Erekat said.
Israel and the United States do not use "annexation" for Israel's planned moves, arguing that the term applies to land taken from a sovereign country, whereas the West Bank was controlled by Jordan but not generally recognized as part of its sovereign territory before the 1967 Six-Day War.