Israel's Cabinet on Sunday approved a contentious bill that officially defines Israel as the nation-state of the Jewish people.

The bill still needs to be passed in parliament to become a law, but the latest move may further inflame tensions with Arab Israelis and Palestinians. It could also shake up Prime Minister Benjamin Netanyahu's coalition government due to the fierce opposition of two of his more centrist partners.

The bill calls for recognizing Israel's Jewish character, institutionalizing Jewish law as an inspiration for legislation, and delisting Arabic as an official language. Opponents say the bill undermines Israel's democracy, and rights groups have called it racist.

Arabs make up about 20 percent of Israel's population and strongly oppose the bill.

The Palestinian Ministry of Foreign Affairs on Monday warned of the dangers of the law and called on the international community to take an unreserved position in its regard.

In a statement, the ministry said Netanyahu’s government is seeking to endorse the occupation of Palestine and is bringing the curtain down on efforts to revive negotiation. Adopting the law would legitimize what the ministry called racist measures as practiced by the Israeli government against Palestinian citizens of Israel.

Netanyahu on Sunday also called for a bill that would revoke residency rights for Palestinians involved in attacks against Israelis, in response to a wave of deadly violence.

"It cannot be that those who harm Israel, those who call for the destruction of the state of Israel, will enjoy rights like social security," Netanyahu told his Cabinet, adding that the measure would "complement" Israel’s controversial policy of demolishing Palestinian attackers’ homes.

The measures were billed as a deterrent, but some critics view them as racist policies that could further escalate tensions.

Tensions spilled over to the West Bank on Sunday when a Palestinian family's home was torched in an attack they blamed on Jewish settlers. Israeli police said they were investigating.

In Gaza, meanwhile, Palestinian health officials said Israeli troops shot dead a 32-year-old farmer after he approached the border. Israel's military said it fired warning shots before shooting at two suspects approaching the border, hitting one of them in his lower body. It would be the first fatality in Gaza since a cease-fire ended last summer's war.

Israel has vowed to respond harshly after a raid on a Jerusalem synagogue last week in which two East Jerusalem Palestinians killed five people with guns and meat cleavers. Israel has already resumed its policy of demolishing Palestinian attackers' homes.

Meanwhile, a spokeswoman for an Israeli mayor who suspended work by Arab laborers over the violence said that work will resume on building bomb shelters in kindergartens next week, but that children would be moved to other locations in the city of Ashkelon during the construction.

Israel captured East Jerusalem in 1967 and annexed it in a move not recognized internationally. While few of the city's 300,000 Palestinians have taken citizenship, their residency grants them access to social services and freedom of movement.

Al Jazeera and wire services