Opposition Israeli politicians sharply criticized the announcement, which comes days before Israeli and Palestinian negotiators are set to resume long-stalled direct talks on Wednesday.

"(Israeli Prime Minister Benjamin) Netanyahu has to decide which government he is heading, a government that is trying to reach a peace agreement or a government that is trying to undermine all possibilities of this agreement," said Shelly Yachimovich, head of the Labor Party and the Israeli opposition.

She described the plans for fresh construction as a "'finger in the eye' of the United States, Europe, the Palestinians and the majority of the Israeli people that are seeking peace."

Finance Minister Yair Lapid said the settlements "are not conducive" to the peace-talk process and described the move to build more units as a mistake.

But Housing Minister Uri Ariel stood by his announcement and said the government was asking for bids from construction contractors to build more than 1,000 new settlement units.

"The Israeli government is lowering the cost of living in all parts of Israel," he said. "No country in the world will accept dictates from other countries where it is allowed to build and where not to."

Israel will continue to market homes and build all over the country, he said.

"This is the right thing to do," he said, "both in Zionist and economic terms."

Palestinian leaders criticize decision

But the news that Israeli authorities have given preliminary approval for new settlements in the West Bank and Jerusalem -- considered illegal under international law -- has angered senior Palestinian figures and prompted condemnation from Israel's Western allies.

The issue of Israeli settlement-building in the occupied West Bank and Jerusalem derailed the last round of direct talks in 2010.

Israeli and Palestinian negotiators agreed to return to the table after intense diplomatic efforts by U.S. Secretary of State John Kerry on a visit to the region last month.

On Sunday, Palestinian chief peace negotiator Saeb Erekat criticized the settlement announcement, calling for international condemnation.

"This is more than a provocation. This is more than poking us in the eye," he said. "This is something absolutely unbelievable, unacceptable and something that should be condemned as soon as possible."

Hanan Ashrawi, a member of the executive committee of the Palestine Liberation Organization, decried what she said was the failure of the international community to hold Israel accountable for its actions.

"We are not surprised, but at the same time, we are dismayed at the American role," she told CNN Sunday. "If the U.S. is serious about peace, it has to stop, it has to make Israel stop its settlement activities, it has to curb Israel's veracious appetite for Palestinian land and resources, and it has to tell Israel that it must abide by international law and the requirements of peace."

Israel's renewed plans of constructing settlements, she said, are undercutting the proposal to achieve Mideast peace that officials have long touted: the two-state solution, which would create separate Israeli and Palestinian states.

"It has rendered the peace talks entirely irrelevant because it is unilaterally destroying the two-state solution," she said, "stealing Palestinian land, building more settlements in Jerusalem, and then saying it wants to talk about the two-state solution while effectively it is acting to destroy it."

Mark Regev, an Israeli government spokesman, said Sunday that the construction would not impact peace talks.

"How is this a problem if Israel is building in communities that in any way in any possible future peace agreement will stay part of Israel in any case?" he said. "I think there's more posturing here, there's more spinning here, than reality. The truth is the way to solve all these issues is through negotiations, and we're ready to do that."

U.S. does not "accept the legitimacy of continued settlement activity'

State Department spokeswoman Jen Psaki said Thursday that the United States had been in touch with the Israeli government over the decision and was making its concerns known.

"Our position on settlements has not changed. We do not accept the legitimacy of continued settlement activity and oppose any efforts to legitimize settlement outposts," she said.

Psaki said she had no indication that the Israeli announcement would impact on the negotiations.

Kerry, she added, "has made clear that he believes both of the negotiating teams are at the table in good faith and are committed to working together to make progress."

Israel: 26 Palestinian prisoners to be released

As the talks near, Israeli officials have approved the release of 26 Palestinian prisoners.

Authorities said they would publish a list of the prisoners online Sunday night.

The prisoners will be released at least two days after the list is published, the Israeli government said in a statement.

As they approved the release Sunday, the statement said, a committee of Israeli Cabinet ministers stressed "that if any of the released prisoners return to hostile activity against the state of Israel, they will be returned to continue serving their sentences."

Amid tensions, a border shooting

The Israeli military shot and killed an unarmed Palestinian Saturday along the border fence between Gaza and Israel, an Israeli military source said.

Explosive devices have been planted in the area in the past, an Israeli military spokesman said.

"He began crossing the fence with a suspicious object in his possession," the spokesman said. "Upon crossing the fence the soldiers fired warning shots in the air. The suspect failed to comply. He did not stop, so the soldiers, after exhausting other means, fired towards the suspect. The incident is being currently investigated."