Israeli Prime Minister Ariel Sharon has pledged to go ahead with the expansion of a Jewish settlement near Jerusalem fiercely opposed by Palestinians.
Palestinians say the Israeli plan will cut eastern Jerusalem in two
He said 3,500 homes would be built to link to form a corridor between the city and the largest West Bank settlement, Maale Adumim.
The US secretary of state has warned the plan is "at odds with US policy".
But Israelis hope George W Bush will confirm they can keep the settlement when he meets Mr Sharon next week.
"We know he will keep his word," said Israeli Deputy Prime Minister Ehud Olmert, speaking of the US president's pledge last year that Israel could retain large settlements under a final peace accord.
The Palestinians are strongly opposed to the plan, which they say will split eastern Jerusalem in two, effectively preventing it from becoming the capital of their future state.
Mr Sharon is due to meet settler leaders, who have agreed to sit down with him for the first time in months, to discuss his plan to evacuate all 21 settlements in the Gaza Strip.
Correspondents said the meeting indicates the settlers are now resigned to the evacuation and hope to agree compensation levels.
Mr Sharon told a closed-door parliamentary committee session that construction in Maale Adumim was not a "serious problem".
"We must link Jerusalem to Maale Adumim," officials quoted him as saying.
US Secretary of State Condoleezza Rice said last month she thought the expansion of Maale Adumim might have a negative impact on the peace process, adding that settlement expansion should come to a "full stop".
On Monday, White House spokesman Scott McClellan appeared to confirm this stance.
"We oppose the expansion of any settlement activity," he said.
"That has been our view and that remains our view."
He added that settlement activity was on the agenda for next week's talks between the US president and Mr Sharon in Texas, which will focus on the Israeli pullout from the Gaza Strip.
The international community considers all settlements in Gaza and the West Bank, including East Jerusalem, as illegal under international law, though Israel disputes this.
Palestinians fear that the withdrawal from the Gaza Strip, an impoverished area with relatively few Israeli settlers, will lead to Israel gaining more control over the West Bank and Jerusalem.