500 more homes to be built in West Bank in response to the murder of five members of a Jewish settler family

Israel is to build hundreds of homes in West Bank settlements in response to the murder of five members of a Jewish settler family, including two children and a baby, believed to be the work of Palestinian militants. The events of the weekend are likely to further push back the prospects of renewed peace talks between Israel and the Palestinians.

The decision to approve 500 housing units was taken on Saturday night, less than 24 hours after the Fogel family were attacked with knives as they slept in their home in the isolated settlement of Itamar, deep in the West Bank. All five had their throats slit.

Thousands of people attended their funeral in Jerusalem on Sunday. Three children in the family survived.

The homes are to be built in the large settlement blocks which Israel expects to keep under any peace agreement with the Palestinians. It is the biggest tranche of construction announced since the end of the settlement freeze almost six months ago. Some members of the Israeli cabinet pushed for a more radical response to the family's murder. Interior minister Eli Yishai, of the pro-settlement, rightwing Shas party, said Israel should build "at least a thousand new homes for each person murdered".

Housing minister Ariel Atias, also of Shas, said: "We must strengthen the settlement, and the time is now."

The move signals a stiffening of the Israeli government's stance in the face of international pressure for a gesture to encourage peace talks to resume. The prime minister, Binyamin Netanyahu, had been expected to propose an interim Palestinian state on temporary borders, but analysts suggested that may now be shelved.

The Palestinian Authority said the construction announcement was aimed at addressing Netanyahu's domestic political problems within his fragile coalition. It would not "cause the Palestinians to forego their right to independence and freedom," said a spokesman, Ahmad Assaf.

Further details of Friday night's attack emerged amid criticism that security procedures at the settlement had not been properly observed.

The attacker or attackers scaled Itamar's perimeter fence, triggering an alarm. Settlement security investigated but failed to notify the Israeli military. The intruders waited inside the settlement for some time after identifying their target, then entered the Fogels' house through a window. Two children were killed first, then the father, who was asleep with his baby daughter, and then the mother, who, it was reported, attempted to shoot the attackers with the family's gun. The attackers then escaped over the perimeter fence, triggering a second alarm.

The bodies were discovered by the Fogels' 12-year-old daughter, who had been attending a youth event in the settlement. Two other children in the house were physically unharmed. The surviving children were being cared for by their grandparents and social workers.

Graphic photographs of the bloodsoaked bodies were yesterday emailed to journalists by the settlers' Yesha council and a Jerusalem public relations firm. Government officials considered distributing the photographs, but decided against the move.

The hunt for the attackers continued for a second daywith a heavy police and military presence in Palestinian towns and villages around Itamar. At least 20 men were arrested in the nearby village of Awarta. Security forces were also on alert against reprisal attacks by hardline settlers.

The defence minister, Ehud Barak, said the "iron fist of the IDF [Israeli Defence Force] and the Shin Bet [intelligence service] will quickly land on the murderers". They will be caught, brought to justice and made to pay, he added.

The funeral of the five victims drew thousands of people to a cemetery on the edge of Jerusalem, causing gridlock as hundreds tried to get to the burial site up to an hour after the scheduled start of the service. Helicopters passed overhead as Chief rabbi Yona Metzger told the crowd that the attackers had only succeeded in uniting Israelis. Settlement expansion should accelerate in response to the murders, he added. "Another neighbourhood, that's the answer. More building, that's the answer," he said.

Reuven Rivlin, the Knesset speaker, said: "We will live, we will continue to build and to plant, we will continue to grip on to the land of Israel. More construction, more life, more hanging on to the land. This is our answer to the murderers."

The Palestinian news agency, Maan, reported a number of incidents in the West Bank on Saturday night after the end of the Jewish sabbath, in which settlers attacked or harassed people in villages and towns.

Itamar, which is home to about 100 families, is a deeply nationalist and religious settlement near the Palestinian city of Nablus. The area has seen frequent clashes in the past.