JERUSALEM, Israel - Israeli Prime Minister Benjamin Netanyahu's inner cabinet approved the construction of 2,000 new housing units in disputed areas, overnight Tuesday.
The move follows UNESCO's decision this week to admit Palestinians into the world body's educational and cultural organization.
The apartments will be built in Jerusalem and in two cities in biblical Judea and Samaria. That's the area many call the West Bank where Palestinians want a future state.
Israel will also freeze the transfer of tax revenues to the Palestinian Authority.
Palestinian officials were furious at the decisions. They say it will bring an end to the peace process.
The Israeli measures are a direct response to Palestinian attempts to gain unilateral statehood at the United Nations instead of through negotiations with Israel.
In related news, the Israeli government gave the army the green light to mount a ground invasion into the Gaza Strip if necessary to stop rocket fire on southern Israeli communities.
More than a million Israelis live in the area under threat of rocket fire from Gaza - hit by dozens of rockets and mortars since Saturday.