Palestinian leaders have accused Israel of dealing a “direct blow” to peace efforts after Israeli municipal authorities in Jerusalem decided to allocate more than £11m for the expansion of a settlement in East Jerusalem, which Palestinians see as their future capital, Belfast Telegraph said.

The decision to fund infrastructure for 1,600 units at Ramat Shlomo settlement, situated on land expropriated from Palestinians, was taken on Sunday, August 25 evening during a meeting of the Jerusalem municipality finance committee.

At the same meeting, the municipality decided to join Prime Minister Benjamin Netanyahu’s office and Israel’s tourism ministry in allocating a total of £3.6m to the City of David National Park, an archaeological site that dovish Israelis view as the spearhead of an effort to transform the Palestinian neighbourhood of Silwan in East Jerusalem into a Jewish area.

Hanan Ashrawi, a spokeswoman for the PLO, said that plans to expand Ramat Shlomo “are a continuation of Israel’s policy of carrying out a flagrant ethnic cleansing of East Jerusalem, are a total disregard of US Secretary of State John Kerry’s initiative and a direct blow to peace.” An official in Netanyahu’s office disputed this. He claimed that Ramat Shlomo would be under Israeli rule in any peace agreement.

“It is time we had a more sensible discussion about building in Jerusalem,” he said.

Yonatan Mizrachi, head of the Emek Shaveh organisation of dovish Israeli archaeologists, criticised the City of David move. “The funding means that the government views this as part of Israel…” he said. “There is a gap between what Israel is saying, that ‘we’re negotiating’, and what it is doing. The Prime Minister is the one talking about peace and at the same time investing money like this.”