Story highlights The UK calls Israeli settlements in the West Bank and East Jerusalem illegal

Israel has approved construction and zoning for future construction, an official says

Secretary of State Hillary Clinton says U.S. position on new Israeli settlement is clear

She says they "set back the cause of a negotiated peace"

U.S. Secretary of State Hillary Clinton called on Israel to reconsider plans to build thousands of homes in its occupied territory, saying it will set back efforts to bring about a two-state solution between the Israelis and Palestinians.

Clinton's comments Friday followed news that Israeli Prime Minister Benjamin Netanyahu authorized the construction of the new homes, a move widely viewed as retaliatory after the Palestinians won a United Nations bid to recognize their claim to become a "non-member observer state."

"In light of today's announcement, let me reiterate that this administration — like previous administrations — has been very clear with Israel that these activities set back the cause of a negotiated peace," Clinton said in remarks delivered at the Saban Center for Middle East Policy in Washington.

Netanyahu has not publicly acknowledged the approval of the new construction. But a senior government official said Saturday that the prime minister signed off on building "3,000 housing units" in the East Jerusalem as well as authorizing planning and zoning for future construction in the West Bank town of Ma'ale Adumim.

"This makes operational plans that were on the table," said the official, who spoke on condition of anonymity because of the sensitivity of the subject matter.

Clinton did not refer to any specific settlement in her remarks. But the Obama administration has repeatedly warned Israel against settling East Jerusalem and the West Bank, particularly the Ma'ale Adumim area, because it would make it nearly impossible to create a contiguous Palestinian State.

Britain also called on Israel to reverse its decision to build housing in the West Bank and East Jerusalem.

"Israeli settlements are illegal under international law and undermine trust between the parties," Foreign Secretary William Hague said in a statement.

"If implemented, these plans would alter the situation on the ground on a scale that makes the two state solution, with Jerusalem as a shared capital, increasingly difficult to achieve. They would undermine Israel's international reputation and create doubts about its stated commitment to achieving peace with the Palestinians."

Israel seized the West Bank, Gaza, Golan Heights and Sinai Peninsula during the 1967 war. The Sinai has since been returned to Egypt. Israel annexed the Golan Heights in 1981, a move not recognized by the international community and condemned by Syria, which still claims the land.

The more militant Palestinian group Hamas now controls Gaza, while the moderate group Fatah -- headed by President Mahmoud Abbas -- administers the West Bank, site of a growing number of Israeli settlements.

Ultimately, the Palestinians are aiming to unite Gaza and the West Bank under the authority of a new state with the capital of East Jerusalem.

The United States was opposed to Palestinian efforts to gain recognition by the United Nations as a "non-member state," warning that such a move might cause Israel to react.

"Palestinian leaders need to ask themselves what unilateral action can really accomplish for their people. President Abbas took a step in the wrong direction this week, to say the least. We opposed his resolution," Clinton said.

"But we also need to see that the Palestinian Authority in the West Bank still offers the most compelling alternative to rockets and permanent resistance. At a time when religious extremists claim to offer rewards in the hereafter, Israel needs to help those committed to peace to deliver for their people in the here and now."

Palestinian officials have refused to enter into new talks with Israel until it stops building settlements on West Bank land. Netanyahu, meanwhile, has said there can be no preconditions on talks.

The Palestinian bid to the United Nations and news of Israeli settlement construction came just days after a cease-fire took hold between Israel and Hamas that brought about an end to a series of Israeli military airstrikes against Gaza launched in an effort to stop Hamas rocket attacks.

Clinton called on Egypt to use its "unique relationship" with Hamas to make clear it opposes any escalation of tensions.

"We look to Egypt to intensify its efforts to crack down on weapons smuggling from Libya and Sudan into Gaza—and I am concerned that, if more rockets are allowed to enter Gaza through the tunnels, that will pave the way to more fighting again soon," she said.