Givat HaMatos, a new settlement district, will be located on the southern flank of east Jerusalem which lies close to the West Bank town of Bethlehem, in what the settlement watchdog described as the first neighbourhood to be planned since the establishment of Har Homa in 1997.

"Unlike recent plans that caused controversy in Gilo and Pisgat Zeev which expanded the footprint of existing neighbourhoods, the new plan creates an entirely new footprint of a new Israeli neighbourhood in east Jerusalem," Peace Now said in a statement.

The establishment of Har Homa in 1997, when Prime Minister Benjamin Netanyahu was serving his first term as premier, infuriated the Palestinians who said its construction would complete a ring of Jewish settlements around east Jerusalem, effectively cutting it off from the rest of the West Bank.

The new district will lie on some of the land between Gilo and Har Homa in what the NGO described as "a game changer that significantly changes the possible border between Israel and Palestine."

"The new neighbourhood will complete the isolation between Bethlehem and east Jerusalem, and will destroy any possibility of a territorial solution in Beit Safafa and Shurafat," the group said, referring to two Arab neighbourhoods.

Plans to build Givat HaMatos were first made public in January 2008 under the government of Ehud Olmert, but they could not be implemented without passing through a lengthy approvals process.

That process is now drawing to a close, and the public now has an eight-week period in which to submit any appeals against the plan to build 2,610 homes.

"If the plan is not withdrawn by the government, the plan will receive the final approval in a few months to a year" after which building can begin, the Peace Now said.

Israel insists that the whole of Jerusalem is the country's "eternal, indivisible capital" and does not consider construction in the east to be settlement building because the land falls within the city's municipal boundaries, which were drawn up after the eastern sector was occupied in 1967.

Israel's annexation of east Jerusalem was never recognised by the international community or the Palestinians, who want the city's eastern sector as the capital of their promised state.

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