Israel will legalise an isolated outpost in the occupied West Bank in response to the murder of one of its residents in a Palestinian shooting last month.

Benjamin Netanyahu, Israel’s Prime Minister, told his weekly Cabinet meeting that those who try to “break our spirit and weaken us made a grave mistake”.

Mr Netanyahu said the decision to retroactively authorise the 50-family outpost of Havat Gilad was designed to ”allow the continuation of normal life there”.

The anti-settlement Peace Now group said the move to legalise the settlement is a “cynical exploitation of the murder”.

Most countries consider Israeli settlements in the West Bank, land Israel captured in a 1967 war that Palestinians want for a future state, to be illegal, but Israel disputes this.

Israelis pray during the funeral of Rabbi Raziel Shevah in Havat Gilad, a currently unauthorised Israeli settlement outpost near the Palestinian city of Nablus (AP Photo/Tsafrir Abayov)

Palestinian officials condemned the move and said it seemed to be the result of a change in US policy towards Israel.

In December, Donald Trump recognised Jerusalem as the capital of Israel, breaking with decades of US policy that the city’s status must be decided in peace negotiations between Israel and the Palestinians.

“Netanyahu is trying to make facts on ground. All settlements in the West Bank, including in Jerusalem, are illegal,” said Wasel Abu Youssef, a member of the Palestine Liberation Organisation’s executive committee.

Earlier this month, Rabbi Raziel Shevah, a 35-year-old father of six and resident of Havat Gilad, was shot dead from a passing vehicle as he drove near his home in the unauthorised settlement outpost near Nablus.

Palestinian teenager Ahed Tamimi slaps Israeli solider

A suspected associate in the attack was arrested in the northern West Bank overnight on Saturday, the Israel Defence Force said in a statement.

Earlier in the day, a 19-year-old protester was killed in clashes with IDF soldiers calling for the surrender of Ahmad Nassar Jarrar, who is suspecting of leading the cell that killed Mr Shevah, the Times of Israel reports.

Ahmad Abu-Obeid was shot by soldiers when stone-throwers confronted them, the Palestinian Health ministry said.

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It comes after a senior leader of Hamas said the US decision to add him to its list of international terrorists would not change the Islamist militant group’s “positions and policies”.

“They will only make us move forward with confidence,” Ismail Haniyeh said.

The US already considers Hamas a terrorist organisation – the group has killed hundreds of Israelis and fought three wars with Israel since taking over the Gaza Strip in 2007.

On Saturday, Israeli jets hit two Hamas targets at a military site in southern Gaza, a spokesperson for the IDF said.

The strike was said to be in retaliation for a rocket fired from Gaza at Israel on Friday night, which exploded in an open area and caused no injuries or damage.

The IDF “sees Hamas as being solely responsible for what happens in Gaza”, the spokesperson added.