The Israeli cabinet has approved the next phase of a controversial fence it is building in the West Bank to stop Palestinian suicide bombers.
Israel says it needs the fence to protect it from Palestinian attacks
The new fence will not be immediately connected to the barrier built so far, as a concession to Israel's main ally, the US.
However, sections will be built around several Jewish settlements in the heart of the West Bank.
The US administration said its view on the fence as problematic had not changed, but he fell short of any detailed criticism of Israel's latest decision.
The Israeli cabinet decision comes a day after a United Nations report condemned the barrier as illegal and tantamount to "an unlawful act of annexation".
Earlier, the Israeli army reportedly killed a member of the radical Palestinian group Islamic Jihad and detained another in separate raids in the West Bank.
Palestinian sources said Mazen al-Badawi was killed by Israeli troops in Tulkarm, while Bassam Saadi was captured when a large group of soldiers, supported by two helicopter gunships, swept into a Jenin refugee camp.
The next section of the Israeli fence, which will be 45 kilometres (28 miles) long, is being built further east and will be deeper in the West Bank than other sections built so far.
The most contested issue in planning the next segment was whether the barrier would incorporate Ariel, the West Bank's second-largest Jewish settlement with a population of 18,000.
"Certainly it has to pass east of Ariel, but in a manner which will not antagonise the population of the territories and which will be in coordination with the agreements we have with the US Government," Deputy Prime Minister Ehud Olmert said.
The Israeli cabinet has decided to leave gaps in the fence to be patrolled by troops.
The issue will be discussed with the Americans again in the middle of next year, and only then will a decision be taken on whether to close the gaps and make the final connection.
US President George Bush has in the past described the barrier as a problem.
State Department spokesman Richard Boucher Mr Boucher said on Wednesday that Washington would closely look at Israel's latest decision.
"It remains our long-standing policy to oppose activities by either party in the West Bank and Gaza that prejudge final status negotiations," he said.
"We are continuing to discuss our concerns with the government of Israel."
The US is considering withholding loan guarantees to Israel to the value of the cost of any sections of wall the US considers unnecessary.
Palestinians have reacted angrily to the cabinet's decision. They say the decision to build a fence on Palestinian land is theft and will threaten the viability of a future Palestinian state.
About 11,000 Palestinians live in the area between the two barriers and their lives are likely to become more difficult as a result of the fences, says the BBC's Jannat Jalil in Jerusalem.
Bassam Saadi had become the effective leader of Islamic Jihad in the West Bank, after the detention or killing of other senior members of the group last year.
Islamic Jihad has carried out a large number of attacks that have killed hundreds of Israelis in recent years.
Local witnesses said that Mr Saadi was found hiding under a car outside a mosque, by soldiers with sniffer dogs.
Another 14 Palestinians were taken into Israeli custody overnight, after raids near Nablus, Ramallah and Hebron.
Israeli forces also entered Qalqilya early on Wednesday, and imposed a curfew in the town.