Israel's government Sunday approved the construction of 31 settler homes in Hebron, the first such green light for the flashpoint West Bank city since 2002, a cabinet minister said.
Construction permits were agreed in October last year but needed the government's approval, according to the Peace Now NGO which monitors settlement construction in occupied territory.
"For the first time in more than 20 years, Hebron will have a new Jewish neighbourhood where a military camp once stood," Defence Minister Avigdor Lieberman said after the weekly cabinet meeting.
He said in a statement that the project will comprise 31 settler homes and two kindergartens.
"It is an important step in the global activity which we are carrying out to reinforce settlements in Judea and Samaria," added Lieberman referring to the occupied West Bank.
Hebron is holy to both Muslims and Jews, with Old Testament figures including Abraham believed to be buried there.
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The city is a flashpoint reflecting the deep tensions that run between Palestinians and Israelis.
Hebron is home to around 200,000 Palestinians, with about 800 settlers living under Israeli army protection in several heavily fortified compounds in the heart of the city.
The Hebron units are to be built on Shuhada Street, once a bustling shopping street leading to a holy site where the biblical Abraham is believed to have been buried.
The street is now largely closed off to Palestinians who have repeatedly demanded that it be reopened to traffic.
The area was seized in the 1980s by the Israeli army which built on it a military base to protect Hebron's Jewish settlers.
The 1994 massacre of 29 Muslim worshippers in Hebron by Israeli-American Baruch Goldstein led to an agreement three years later giving the Palestinian Authority control over 80 per cent of the city.
The settlers and about 30,000 Palestinians living adjacent to them fall under Israeli military rule.
Peace Now said in a statement that the land on which the settler homes will be built legally belongs to the Palestinian municipality of Hebron.
Israeli settlements are considered a violation of international law and major stumbling blocks to peace efforts as they are built on land the Palestinians want for their future state.
But Israel disputes that and says Palestinian intransigence, violence and "incitement" against it are responsible for stalled peace efforts.
According to Peace Now settlement plans in the West Bank have increased since the beginning of 2017, when Donald Trump, a key ally of Israeli Prime Minister Benjamin Netanyahu, was inaugurated as president of the United States.
About 430,000 Israeli settlers live among 2.6 million Palestinians in the West Bank, occupied by Israel in the 1967 Six-Day War.