A leading government hawk has called for Israel to establish sovereignty over nearly a third of the occupied West Bank, hours after United States President Donald Trump announced a Middle East peace plan that Palestinians said amounted to apartheid.

With Prime Minister Benjamin Netanyahu still outside Israel after attending the plan's presentation in Washington, Minister of Defense Naftali Bennett on Wednesday outlined his hardline interpretation of what the White House had offered Israel.

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"Last night history knocked on the door of our home and gave us a one-time opportunity to apply Israeli law on all settlements in Samaria, Judea, the Jordan Valley and the northern Dead Sea," Bennett said, using the Hebrew names for areas in the Israeli-occupied West Bank

The remarks by Bennett, a coalition partner in Netanyahu's right-wing government, led Palestinians to say Trump's plan had given the "green light" for Israel to formally annex its settlements in the West Bank, which it has occupied since the 1967 Six Day War.

Trump's plan envisages a two-state solution with Israel and a future Palestinian state living alongside each other, but with strict conditions at which Palestinians have baulked.

He proposed a four-year schedule for the creation of a Palestinian state, with Palestinians first having to agree to halt attacks by the Hamas group that controls the besieged Gaza Strip enclave.

But the plan also offered US recognition of Israel's West Bank settlements, which are deemed illegal under international law - as well as offering Israeli sovereignty over the Jordan Valley, and a redrawn, demilitarised Palestinian state that would meet Israel's security requirements.

Jerusalem would be the undivided capital of Israel, it said.

'Diplomatic compass'

Bennett had ordered a team to be set up to apply Israeli law and sovereignty on all Jewish settlements in the West Bank.

He is vying with Netanyahu for support from right-wing voters in an election set for March 2.

It is unclear whether the present caretaker administration has a legal mandate to carry out such a move after two inconclusive elections in 2019.

Netanyahu on Wednesday reiterated his support for Trump's plan, telling the US-based Fox television network: "We will not contradict in any way the outline that the president put forward."

But Amir Peretz, head of Israel's left-wing Labor Party, said no unilateral plan could work. "Now more than ever, it's clear that we need a diplomatic compass," he said.

'It's about apartheid'

Palestinian President Mahmoud Abbas called Trump's plan the "slap of the century" after it was announced.

Chief Palestinian negotiator Saeb Erekat said on Wednesday that Trump's team had simply "copied and pasted" the blueprint that Netanyahu and Israeli settler leaders wanted to see implemented.

"It's about annexation, it's about apartheid," he said in Ramallah in the Israeli-occupied West Bank. "Moving to the de jure annexation of settlements is something that was given the green light yesterday."

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Palestinians also dismissed the proposal for a capital in Abu Dis in the West Bank, just outside the Israeli municipal borders of Jerusalem.

It lies a mile east of the historic walled Old City, home to sites sacred to Judaism, Christianity and Islam, but cut off by an Israeli wall and checkpoints.

Before announcing the much-touted plan, the Trump administration had broken from international consensus by recognising Jerusalem as Israel's capital. The administration had also halted aid to the Palestinians, and said it no longer considered the settlements a breach of international law.

Jared Kushner, Trump's son-in-law and the plan's principal architect, shrugged off the Palestinian rejection.

"We're not going to chase the Palestinians ... the Palestinian leadership, you can't really treat them like they're a serious government, or capable or competent dealmakers," he told reporters. "They'll do what they've always done, which is screw everything up."

The Palestinians could push for a United Nations condemnation of the plan. Israel's UN mission signalled on Tuesday that it would work to thwart this in a diplomatic campaign with the US.

Palestinian state

Gaza political analyst Talal Okal said the deal gave Israel the right to take what it wanted "immediately, while the Palestinians have to wait four years to see whether they have rights or not".

Amos Yadlin, a former Israeli head of military intelligence, said: "This is the most favourable plan for Israel ever presented by an international player".

However, he said that because the plan included mention of a two-state solution, it could still cause problems for Netanyahu among his right-wing allies.

Bennett seemed to confirm this. "The Israeli government," he said, "will not recognise a Palestinian state."