A government official says the plans also include building infrastructure in the West Bank that will be used by Palestinians as well as Israelis. He spoke on condition of anonymity today because he is not authorized to talk to media.
Palestinians demand east Jerusalem home to the city's most sensitive holy sites for Jews, Muslims and Christians as their future capital and oppose any Israeli construction there.
Finance Minister Yair Lapid opposed the plan, saying it will lead to a "serious crisis in Israel-US relations."