OCCUPIED JERUSALEM — Israel on Wednesday approved plans for a large tourism complex in the heart of Arab East Jerusalem and another 130 settler housing units for Jews elsewhere in the Holy City's annexed eastern sector, an official said.

Meanwhile, the Israeli government is to retroactively legalise the wildcat settler outpost of Ramat Gilad in the northern West Bank under the terms of a deal reached with its residents, a settler leader said.

Both new construction plans in East Jerusalem were rubber-stamped at a meeting of the occupation’s city council's district planning committee, angering the Palestinians.

The new tourism venture will be built in the flashpoint neighbourhood of Silwan, which lies just south of Jerusalem's Old City.

"The municipality authorised construction of a tourist complex that includes 250 parking spaces, an archaeological park, an events hall and a library," city councillor Pepe Alalu of the left-wing Meretz Party told AFP.

The project is to be built on a plot of land currently being used as a car park opposite the Dung Gate, the main entrance to the Western Wall and the Jewish Quarter of the Old City.

It would be managed by Elad, a hardline settler organisation which seeks to increase Jewish settlement in East Jerusalem and which runs the nearby archaeological site at David's City.

"Jerusalem municipality attaches great importance to the development of this tourism and archaeology site in David's City," municipal spokesman Stephan Miller told AFP.

"The plans which were presented to the city council will allow for the establishment of visitors' centres, exhibition centres, a conference hall and other facilities which will allow the most important archaeological finds discovered at the site to be put on display," he said.

But local Palestinian activists lashed out at the move, saying the 8,400-square-metre project, was another step in Israel's plans to take over their neighbourhood.

"This project aims to promote settler tourism and religious tourism," said Fakhri Abu Diab, head of the Silwan Defence Committee, who said the city had confiscated local land for the project.

"This complex will change the character of the area and will emphasise the idea that Jerusalem is the capital of the Jewish people — because it is a political project too," he charged.

The complex would be a multi-storey affair which would be higher than the Old City walls and would in some places block Silwan's view of the walled Al Aqsa Mosque compound.

Silwan is part of the so-called Holy Basin around the Old City and believed to be the site of ancient Jerusalem during the time of the biblical kings David and Solomon, Jews claim.

The densely populated neighbourhood, which is built on the steep hillsides of the Kidron Valley, has seen regular clashes between locals and a 400-strong community of hardline Jewish settlers living in their midst.

Earlier on Wednesday, city councillors had approved plans for another 130 housing units in Gilo, a settlement neighbourhood which lies close to Bethlehem, Meretz’s Alalu said.

“An agreement has been reached for construction of 130 apartments in three towers of 12 storeys each,” he told AFP, saying construction was likely to begin “in about three years”.

Wednesday’s approval did little to improve the mood between Israel and the Palestinians, who have not sat down for face-to-face talks for more than a year after direct negotiations collapsed following a dispute over settlements.

“I guess this is the New Year message that the government of Israel is sending us for 2012: ‘We will continue destroying the peace process and killing the two-state solution through continuing and escalating settlement activity’,” remarked Palestinian negotiator Saeb Erekat.

On November 1, Israel’s inner Cabinet decided to speed up construction of housing units for Jews in Arab East Jerusalem and in other nearby settlements to punish the Palestinians for winning membership in the UN cultural agency, UNESCO.

Since then, Israel has issued announcements for 2,057 new housing units in Arab East Jerusalem and 1,241 in the West Bank, official figures show.

At least 200,000 Israelis live in a dozen settlement neighbourhoods in East Jerusalem, which was occupied by Israel in 1967 and annexed in a move never recognised internationally.

The Palestinians see East Jerusalem as the capital of their promised state and oppose any attempts to extend Israel’s control over the part of the city that was captured in the 1967 Six Day War.

Israel considers the whole of Jerusalem its “eternal and indivisible” capital.

In a related development, the Israeli government is to retroactively legalise the wildcat settler outpost of Ramat Gilad in the northern West Bank under the terms of a deal reached with its residents, settler leaders said.

The outpost, on a hilltop southwest of Nablus, was to have been partly demolished by the end of the year by virtue of an order from Israel’s Supreme Court, which ordered the removal of outposts built on private Palestinian land.

But under the terms of a deal between the government and the settlers, five housing units and a number of storage facilities will reportedly be relocated to a different site within the outpost.

The remainder of the outpost, which was set up in 2001, will then formally be legalised by the government and recognised as an extension of the nearby Karnei Shomron settlement.

Danny Dayan, chairman of the Yesha settlers’ council, welcomed the agreement which was reached between the council, residents of Ramat Gilad and the government, saying it would nix any chance of clashes between residents and the army.

“This agreement prevents confrontation and strengthens Ramat Gilad in particular and the settlement enterprise in general,” he said in a statement.

Court documents show the outpost is home to some 30 people living in 12 caravans on an area of 41 dunums, 43 per cent of which is privately owned Palestinian land.

But Hagit Ofran, an activist with Peace Now, said the deal proved the government had capitulated to the whims of hardline settlers.

“The agreement to legalise Ramat Gilad is a sign that the government has surrendered to the settlers, who can now build wherever they want,” she told AFP.

“Under their pressure, the government has abandoned all its principles of justice,” she said.

Earlier this month, troops demolished a house and an animal pen in the Mitzpe Yitzhar outpost near Nablus, which were built on private Palestinian land, sparking a campaign of angry reprisals by settler activists, mostly targeting Palestinians and their property.

Israel considers settlement outposts built without government approval to be illegal and often sends security personnel to demolish them. They usually consist of little more than a few trailers.

But the international community considers all settlements built in the West Bank, including East Jerusalem, to be illegal.