Israel has approved the final route around Jerusalem for its controversial West Bank barrier, leaving four Arab areas of the city lying outside it.
The route will leave Jerusalem Arab suburbs on the other side of the barrier
The decision will make it more difficult for 55,000 Palestinian residents to reach the city's schools and hospitals.
The Israeli cabinet has also set a new deadline of 1 September for the barrier's completion around Jerusalem.
Palestinians say the barrier grabs land; Israel says it is for security.
The cabinet approved a package of measures to ease the humanitarian impact of the barrier, saying they would provide transport and crossing points for residents in the Arab suburbs, and build new schools and hospitals on the Palestinian side.
Around 230,000 Palestinians live in the city.
But human rights groups say there is little new in the decision, saying the barrier around two of the Arab areas has already been completed, and the part around the other two is under construction.
Chief Palestinian negotiator Saeb Erekat said the move could wreck the troubled peace process.
"This is a very critical development which has the potential to destroy the entire peace process," he told the AFP news agency.
Last week, the Israeli government decided to speed up the construction of the barrier.
Palestinian and international criticism and court rulings have forced Israel to revise the barrier's route and slowed construction.
The barrier is expected to be 425 miles long when complete, and cuts deep into the West Bank in places.
It will separate the West Bank from East Jerusalem, which Palestinians want as the capital of a future state.