Meanwhile, the United States hasn't changed its stand against any such building.

"We stand by the commitment that we received from the government of Israel last September" that "there will be no construction in that neighborhood and that the overall nature of the neighborhood will not change over time," State Department deputy spokesman James Foley said in repsonse to the announcement.

Faisal Husseini, the Palestinian Authority official responsible for Jerusalem, called the approval of such a plan a "dangerous provocation."

"The decision was made by the Netanyahu government, which plans to destroy the peace process," he said, adding that a "disaster" will ensue if construction begins.

Violent riots broke out in Ras al-Amud last fall, when a small group of Jewish settlers moved into a home owned by Irving Moskowitz, a wealthy philanthropist from Miami.

Final approval came six months after the regional building and planning committee also gave the project the OK, Jerusalem Municipality spokesman Haggai Elias said.

"The municipality automatically approves projects passed on by the regional committee," he said, adding that a plan for the construction of 500 homes for Arab residents was also approved.

It will take two years to complete the project, according to Kaufman. Archeologists first have to carry out a routine dig at the site to ascertain if there are ancient graves there. However, Kaufman expects that ground will be broken "well before" the November elections.

"This is an explicit action of the government against peace," commented Peace Now spokeswoman Hagit Yaari. "You can't have peace and build at Ras al-Amud.

"We promise the government that we will plan a very aggressive campaign against building there. We will do anything it takes."