In the areas to be annexed, homes will be built to house another million people. This will marginalise the 170,000 Palestinians in the city, which has a total population of 600,000.
James Rubin, spokesman for the United States State Department, said earlier that the US found it "extremely hard to understand why Israel would even consider taking such a provocative step at this sensitive time in the negotiations".
Benjamin Netanyahu, the Israeli Prime Minister, has said that Israel has no intention of formally annexing the areas of the West Bank surrounding Jerusalem. However, part of the new plan is to create an "umbrella" municipality which will cover Jewish settlements on the West Bank, such as Maaleh Adumim, which lie immediately to the east of the city.
Israel formally annexed the east of Jerusalem after capturing it in 1967, though this never won international recognition. The Israelis also expanded the city's metropolitan boundaries to take in as much land as possible, though they excluded Palestinian population centres, even when they were five minutes walk from the heart of Jerusalem.
The status of Jerusalem was to remain the same until the final status negotiations under the terms of the Oslo accords. Saeb Erekat, a Palestinian negotiator, said: "This is a declaration of war on the Palestinian presence in Jerusalem. I believe this is a racist religious decision by Mr Netanyahu - racist because his plan is to upset natural demographic development, to Judaise Jerusalem."
Madeleine Albright, the US Secretary of State, is reported by the Israeli press to have telephoned the Israeli Prime Minister after the plan was announced on Friday to say the administration was highly displeased. Mr Netanyahu responded that the only change would be in expanding the boundaries of Jerusalem westwards into Israel.
Under the plan, a further 140,000 housing units would be built west of Jerusalem over the next 20 years, while an organisation in charge of construction and planning would take charge of areas to the east. Some Jewish suburbs, such as Mevasseret Zion on the road to Tel Aviv, have objected to being incorporated into Jerusalem.
Since the Oslo accord was signed in 1993, Israel has been pushing out the Jahalin, the bedouin tribe who are almost the only Palestinian inhabitants of the Judean desert between Jerusalem and the Dead Sea.
Inside Jerusalem itself the Interior Ministry has questioned the Jerusalem identity cards of many Palestinian residents. It has also refused to renew the cards of Palestinian students who study abroad.
The government's offensive to secure a greater grip on Jerusalem has speeded up. Ateret Cohanim and Elad, militant settler groups in the Old City of Jerusalem and its immediate neighbourhood, have become more aggressive in taking over houses that were formerly occupied by Palestinians. Mr Netanyahu removed an unofficial prohibition against such moves issued by his office.Reuse content