E1 has been contentious for years, with Washington warning various Israeli governments not to start building there. But E1 burst back into the forefront recently after Mahmoud Abbas, the president of the Palestinian Authority, won United Nations General Assembly approval to recognize Palestine as a nonmember observer state. Mr. Abbas pressed ahead despite warnings from the United States and Israel that such an action would be a unilateral step in violation of the 1993 Oslo Accords that set up the supposedly interim Palestinian Authority.

Mr. Abbas won handily in the General Assembly on Nov. 29, in a 138 to 9 vote. Even Germany, a strong Israeli ally, abstained. Prime Minister Benjamin Netanyahu of Israel responded with a three-part riposte. He withheld taxes collected on behalf of the Palestinians to pay down their electricity debt to Israel. He announced final approval for the construction of 3,000 more housing units in East Jerusalem and existing settlement blocs — beyond the 1967 borders, but within current settlement lines. And finally, he accelerated planning for the construction of up to 3,400 housing units inside E1.

The decision set off a critical reaction, especially in Washington and Europe. Many countries called in Israeli ambassadors to complain. But there was confusion, too, with some critics presuming that construction would go ahead in E1.

Israeli officials explained later that any construction in E1, if it happened at all, was many years away, and that the move on E1 was “symbolism against symbolism” — a symbolic response to a symbolic recognition of statehood. But the new planning for E1 is also “a warning to the Palestinians that E1 is now in play if they do further outrageous acts,” one senior official said. “We don’t exclude the possibility that E1 moves from symbolism to something real — the prime minister has raised the stakes and put E1 back on the table.”

Mr. Netanyahu himself told the German newspaper Die Welt that “as far as our future action is concerned, it depends on the Palestinians.” He added: “In any case what we’ve advanced so far is only planning, and we will have to see. We shall act further based on what the Palestinians do. If they don’t act unilaterally, then we won’t have any purpose to do so either.”

But he has also argued that there is a political consensus in Israel that E1 should be used for more Israeli settlement, that previous governments agreed with him, and that the Labor Party, under Mr. Rabin, authorized E1.