The Cabinet's decision, Netanyahu stressed, "has no political implications whatsoever either in Jerusalem or outside of Jerusalem."

Other Israeli officials also said that a primary motivation for the move — to boost Jerusalem's economy — has nothing to do with the peace process.

Despite those pronouncements, however, critics were lining up this week to blast the decision as a provocative act that could deal another blow to the long-stalled peace process.

"I've said this many times: that unilateral acts of any kind at this point do not help," said Secretary of State Madeleine Albright.

Palestinian negotiator Saeb Erekat termed the Israeli Cabinet's decision a "declaration of war."

Ahmed Tibi, an Israeli Arab adviser to Palestinian Authority leader Yasser Arafat, said it was a "slap in the face" of American efforts to end a 16-month deadlock in Israeli-Palestinian negotiations.

Egypt and Jordan, the two Arab countries that have signed peace treaties with Israel, also denounced the plan.

Finally, Israeli opposition members denounced the proposal as well.

The Labor Party accused Netanyahu of mistakenly bringing Jerusalem to the center of political debate. Labor Knesset member Hagai Merom suggested that the decision was an attempt by the premier to placate far-right members of his coalition, who have been clamoring for action on such building projects as Har Homa in southeastern Jerusalem.

Merom also said Netanyahu might be trying to convince right-wing members of his coalition to agree to a further redeployment of Israeli troops from the West Bank. The United States has been pressing Israel to carry out a redeployment of some 13 percent, but Netanyahu has balked at making a decision on the size of a redeployment and the National Religious Party has threatened to bring down his government if he agrees to a redeployment.

"It seems that the prime minister started to deal with the Jerusalem question in order to gain the favor of the National Religious Party and all the other right-wing representatives," said Merom, "to show that he is not giving up territories, but the opposite, he is annexing territories to the city of Jerusalem."

But Merom cautioned that a provocation such as expanding Jerusalem would block the achievement of a further redeployment.

The head of the National Religious Party faction in the Knesset, Shmaryahu Ben-Zur, welcomed the decision to strengthen Jerusalem as a "first step," and called on the government to immediately begin building on Har Homa and expanding eastward.

The brouhaha followed the Cabinet's decision Sunday to create an umbrella municipality for the greater Jerusalem area, which would include such communities as Givat Ze'ev and Ma'aleh Adumim, which are in the West Bank.

The proposal, drawn up by a government committee in a bid to strengthen the economic development of the capital, also includes annexation of land and suburban communities west of the capital within Israel proper. That has sparked sharp opposition from Jewish residents of those areas.

Hundreds of residents of affected communities protested in Jerusalem Sunday, saying that the plan to annex their suburbs would raise their taxes. Leaders said the annexation would undermine the lifestyle and independence that residents living there had sought.

According to the Cabinet decision, eight main points were addressed in the plan:

*Widening the city's jurisdiction, to annex outlying communities west of the capital. Following sharp protests from residents of Mevasseret Zion, a suburb of Jerusalem, the community was excluded from the plan.

*Creation of an umbrella, or "super-municipality," that would provide services for additional communities, including some located in the West Bank, in such areas as planning and building.

*Encouraging development of a high-tech area to create jobs.

*Offering housing benefits to reduce the current gap in prices between housing in Jerusalem and lower-cost areas outside the city.

*Improving train service between Jerusalem and Tel Aviv.

*Integrating a mass transit system of light rail and buses.

*Development of a major road system surrounding the city.

*Speeding up implementation of neighborhood renewal projects.

Netanyahu, who was joined at his news conference by Jerusalem Mayor Ehud Olmert, said the plan's purpose was to streamline services already provided to outlying communities and to give Jerusalem more control over areas west of the capital.

They said the plan's inducements for housing, jobs and transportation would benefit the city's Jewish and Arab residents.

In a conference call last Friday, Albright asked the chairman of the Conference of Presidents of Major American Jewish Organizations, Melvin Salberg, who was in Israel, to press Netanyahu to cancel the plan.

Albright, who initiated the call on four hours notice, told a dozen U.S. Jewish leaders that in an earlier call Netanyahu had denied that such a plan existed. According to a participant on the call, Albright said that Netanyahu blamed the reports on "Palestinian propaganda" and promised to clarify his position at a news conference.

The news conference, however, did little to mollify American or Palestinian concerns.

Despite the Israeli clarifications, Palestinian officials denounced the move as a de facto annexation of areas in the West Bank and an attempt to alter the status of Jerusalem and the city's demographic balance between Jews and Arabs, in violation of the signed accords.