Israeli Prime Minister Ehud Olmert has approved a plan to build up to 750 new homes in a Jewish settlement in the West Bank
The project was first signed off in 1999, but stopped two years later after Palestinian labourers refused to go on.
Israel's housing minister said the construction at Givat Zeev would address "the demographic needs of Jerusalem".
But the decision provoked an angry reaction from Palestinian leaders.
For the Palestinians there are few issues as contentious as the building of Jewish settlements in the occupied West Bank, says the BBC's Crispin Thorold in Jerusalem.
Under the terms of the peace process settlement …
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