In an initial move following Trump’s inauguration, Israeli officials on Sunday approved building permits for 566 settler homes in annexed east Jerusalem.
The Palestinians had claim east Jerusalem as the capital of their future state.
“The rules of the game have changed with Donald Trump’s arrival as president,” Jerusalem Deputy Mayor Meir Turjeman told AFP.
“We no longer have our hands tied as in the time of Barack Obama. Now we can finally build.”
The Palestinian presidency condemned the move, calling it a violation of the UN resolution.
A draft bill to annex the Maale Adumim settlement in the occupied West Bank had been on the agenda for approval by a ministerial committee legislation on Sunday.
Such a move could badly damage prospects for a two-state solution.
But the inner circle of senior ministers known as the security cabinet blocked it for the time being, a member said.
“What was decided was to wait for the meeting which will certainly take place within a few weeks,” Energy Minister Yuval Steinitz told Israeli public radio.
Annexing Maale Adumim unilaterally would set off alarm bells globally, with many warning that it would be another step towards dividing the occupied West Bank between north and south, making a contiguous Palestinian state difficult to achieve.
For some Israeli ministers who oppose a Palestinian state, that is precisely the point.
“We have to tell the American administration what we want and not wait for orders from the administration,” Justice Minister Ayelet Shaked told Israel’s army radio.
Maale Adumim, in a strategic location east of Jerusalem, has some 37,000 residents.
Some peace proposals have envisioned it becoming part of Israel in land swaps agreed with the Palestinians, but not unilaterally.
Israel occupied the West Bank, like east Jerusalem, in 1967.
Some 400,000 Israeli settlers live in the West Bank, with another 200,000 in east Jerusalem. In comparison, around 2.9 million Palestinians live in the West Bank and east Jerusalem.
Settlements in both the West Bank and east Jerusalem are viewed as illegal under international law.