Will Israel's proposed West Bank settlement plan end the two-state solution?

Israel appears set to give formal planning approval next week to one of its most contentious settlement projects, which critics say would split the occupied West Bank in half and deal a fatal blow to prospects for a two-state solution.

Finance Minister Bezalel Smotrich announced yesterday that 3,412 new housing units would be built in the so-called E1 area between Jerusalem and Ma’ale Adumim, an existing settlement in the West Bank. The project has been frozen for decades under heavy international pressure, particularly from the United States, over concerns it would sever the northern West Bank from its southern regions and cut East Jerusalem off from the rest of the territory.

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The Supreme Planning Council—the government body that approves such plans—is expected to meet next week to give final authorisation after a sub-committee rejected all objections earlier this month. Once approved, the state will be able to issue tenders and building permits, potentially allowing infrastructure work to begin within months and housing construction to start within a year.

Bezalel Smotrich and a 'Jewish reality'

Standing at the planned site in Ma’ale Adumim, Smotrich told journalists and settlement leaders that the plan would “bury the idea of a Palestinian state”.

“Those in the world trying to recognise a Palestinian state will get an answer from us on the ground ... Not through documents, not through decisions or declarations, but through facts. Facts of homes, neighbourhoods, roads and Jewish families building their lives,” he said.

Smotrich, a far-right settler politician who also holds a post in the defence ministry overseeing planning in the occupied territories, claimed that Prime Minister Benjamin Netanyahu and President Donald Trump had agreed to revive the E1 project, though neither has confirmed this. Netanyahu’s office is yet to comment and the US State Department sidestepped the issue by saying that “a stable West Bank keeps Israel secure and is in line with this administration’s goal to achieve peace in the region”.

The announcement came days after Australia, Britain, Canada, France and other nations pledged to recognise Palestinian statehood, a move they say is intended to revive negotiations over a two-state solution amid the humanitarian crisis in Gaza.

Smotrich dismissed such efforts, calling the two-state framework “an illusion” and insisting the government should apply Israeli sovereignty over the West Bank. “They’ll keep talking about a Palestinian dream—and we will continue building a Jewish reality,” he said.

A project frozen for decades

The E1 area (spanning 12 square kilometres) was annexed to the municipality of Ma’ale Adumim and lies to the north and west of the city.

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First proposed in the 1990s by then prime minister Yitzhak Rabin, the plan has barely advanced over the past 20 years due to the intensity of opposition abroad. Successive Israeli governments have been wary of the diplomatic backlash, with even US administrations generally regarding E1 construction as a red line.

What peace groups say

Peace Now, an Israeli organisation that tracks settlement activity, said the Netanyahu government was “exploiting every minute to deepen the annexation of the West Bank and prevent the possibility of a two-state solution”.

The group warned that the project would create a continuous bloc of settlements from the centre of the West Bank to Jerusalem, cutting off the Palestinian urban centres of Ramallah, East Jerusalem and Bethlehem.

Three NGOs—Peace Now, Ir Amim and the Association for Environmental Justice—argue that E1 is the only remaining land reserve between those Palestinian cities, which together are home to around one million people. They say the settlement plan would make it impossible to establish a contiguous Palestinian state with East Jerusalem as its capital.

International reactions

The International Court of Justice issued an advisory opinion last year declaring Israeli settlements illegal under international law and calling for Israel’s withdrawal from occupied territories. Much of the international community, including the European Union, regards the West Bank and East Jerusalem as illegally occupied and earmarked for a Palestinian state through negotiations.

Reaction to Smotrich’s announcement was swift. Jordan’s foreign ministry condemned both the proposed expansion and his remarks as “extremist racist statements” and “a flagrant violation of international law”, calling the move “an assault on the inalienable right of the Palestinian people to establish their independent, sovereign state on the lines of June 4, 1967, with occupied Jerusalem as its capital”.

Germany’s foreign ministry said it “strongly” objected to the plan and urged Israel to halt settlement construction. The Norwegian foreign minister, Espen Barth Eide, accused Israel of seeking “to appropriate land owned by Palestinians in order to prevent a two-state solution”.

EU foreign policy chief Kaja Kallas said the plan “further undermines the two-state solution while being a breach of international law” and called for its cancellation.

Qatar urged the international community to compel Israel to halt the plans, while the chairman of the Palestinian National Council, Rawhi Fattouh, said the move was part of “a de facto creeping annexation policy” aligned with Netanyahu’s vision of a 'Greater Israel'. Hamas condemned the project as “a dangerous criminal step” intended to isolate Jerusalem from its Palestinian surroundings in Ramallah and Bethlehem.

In July, Britain’s Foreign Office described construction in E1 as “a flagrant breach of international law” that threatened the viability of a future Palestinian state. The UK, Canada, Australia and New Zealand sanctioned Smotrich and fellow far-right minister Itamar Ben-Gvir in June for what they called “repeated incitements of violence against Palestinian communities”.

A wider push for annexation

Smotrich has previously said the E1 project is part of a broader effort to expand the settler population in the West Bank and impose Israeli sovereignty there.

In March, the security cabinet approved construction of a separate road for Palestinians to connect villages in the northern West Bank with those in the south, bypassing Road 1 between Ma’ale Adumim and Jerusalem, which would be reserved mainly for Jewish residents.

Critics say the road is designed to facilitate settlement expansion while fragmenting Palestinian territory. The United Nations has warned that the situation risks spiralling into wider conflict if settlement expansion continues unchecked.

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Hagit Ofran of Peace Now’s Settlement Watch project said it was unlikely Smotrich had made “such a dramatic decision” without Netanyahu’s approval. In the past, she noted, the prime minister had blocked similar meetings on settlement approvals under foreign pressure. However, with Israel increasingly isolated diplomatically, she said, the government appeared determined to press ahead.

The E1 controversy reflects a long-running divide in Israeli politics. While far-right elements see it as a vital step in securing Jerusalem and expanding Jewish presence in the West Bank, more mainstream leaders consider it a concern that could isolate Israel further. Therefore, many observers think that Netanyahu might step in at the last minute and rein Smotrich in. 

First mooted more than three decades ago, E1 has become one of Israel’s most intractable settlement disputes: a project embraced by its proponents as a “Zionist statement” and denounced by opponents as a death knell for peace. As the final decision approaches, the gap between those visions has rarely been starker.

Middle East