Israeli officials have characterized the planned construction, announced September 28, as an expansion of an existing settlement in Shilo rather than a new settlement.
They said it would provide housing for residents of Amona, a West Bank outpost a few kilometers away that is supposed to be evacuated and razed later this year, displacing about 40 families. There are also plans for a new industrial zone near Ramallah.
"The 98 housing units approved in Shilo do not constitute a 'new settlement,' " Israel's Foreign Ministry said in a statement. "This housing will be built on state land in the existing settlement of Shilo and will not change its municipal boundary or geographic footprint.
"The units are intended to provide a housing solution for the residents of Amona who must leave their homes in accordance with the demolition order issued by Israel's High Court of Justice."
What does the United States say?
Contrary to what Israel maintains, US State Department deputy spokesman Mark Toner said the construction amounts to the creation of a "significant new settlement."
"This settlement's location deep in the West Bank, far closer to Jordan than Israel, would link a string of outposts that effectively divide the West Bank and make the possibility of a viable Palestinian state more remote," he said in a statement Wednesday.
White House Press Secretary Josh Earnest called the planned construction a setback to peace in the region and suggested the Israeli government had broken its word.
"We did receive public assurances from the Israeli government that contradict this announcement," he said. "I guess when we're talking about how good friends treat one another, that's a source of serious concern as well."
That "public assurance" came in Israeli Prime Minister Benjamin Netanyahu's June 2009 speech at Bar Ilan University, where he said, "The territorial issues will be discussed in a permanent agreement. Till then we have no intention to build new settlements or set aside land for new settlements."
What is the significance of Israel's proposal?
Any new settlement building by Israel is highly contentious -- and the location of the latest planned construction makes it even more sensitive.
The notion of a "two-state solution" has long been central to the tortuous Middle East peace process. It envisages a Palestinian state existing alongside Israel, based on territory in Gaza, the West Bank and East Jerusalem.
But many observers are concerned that Israel's continued settlement building makes the physical reality of a Palestinian state ever less possible, even as political negotiations remain stalled.
"It's getting to the point, especially given the geographic location of this latest settlement announcement, where you know, a Palestinian -- a viable Palestinian state -- becomes increasingly difficult to imagine," said Toner at Wednesday's State Department press briefing.
Settlement building in the occupied West Bank is considered illegal under international law, although Israel disputes this. The United States considers settlements "illegitimate" and "an obstacle to peace."
What do the Palestinians say?
Saeb Erakat, secretary general of the Palestine Liberation Organization and the Palestinian chief negotiator, said Israel's decision to approve the latest construction plans "affirms Israel's resolve to destroy the two-state solution."
"Israel continues to impede international efforts to achieve peace in Palestine and the region amidst the complete inaction by the international community to hold Israel accountable for the crimes it continues to commit against the land and people of Palestine," said Erakat.
Why does the US response matter?
The United States has long been Israel's most stalwart ally and a vital security partner. The United States has repeatedly used its veto power at the United Nations Security Council to protect Israel from resolutions condemning the Jewish state.
In fact, Israel announced this construction only three weeks after Israel and the US signed a $38 billion security aid package for Israel, the largest such agreement ever for a US ally.
In that announcement, President Barack Obama mentioned a two-state solution
, going out of his way to link that package -- a 10-year Memorandum of Understanding -- to the peace process.
Netanyahu, in his statement
, did not mention the peace process or the Palestinians. Instead, he talked about US-Israel disagreements as "disagreements within the family."
Relations between Obama and Netanyahu appeared notably frosty when the US President made the trip to Jerusalem on Friday for the funeral of former Israeli leader Shimon Peres, a strong proponent of the two-state solution.
Obama may view the announcement of the latest construction plans and its timing, less than four months before he leaves office, as a slap in the face.
Will the US take concrete action?
Israel's fear is that Obama could now act at the United Nations, after the US elections in November but before the next president is inaugurated in January. This could mean backing a UN Security Council resolution that could seek to impose parameters for negotiations for a two-state solution on Israel and the Palestinians, or a similar UN resolution.
Presidential candidates Donald Trump and Hillary Clinton each met with Netanyahu following the UN General Assembly in New York last month
. Clinton reaffirmed "her opposition to any attempt by outside parties to impose a solution, including by the UN Security Council," according to Netanyahu's office. Trump has also previously ruled out any UN Security Council resolution on the issue.
But that's something Obama did not promise -- in fact, it never came up when Obama met with Netanyahu last month.
Pressed by reporters in the briefing room on whether the United States would take the issue to the United Nations, Toner said "our position hasn't changed" but that the administration was "going to carefully consider our future engagement."
"I'm just going to say we're working on this bilaterally. We're working with other international partners. We're just not convinced that the UN is the right venue for that," he said.
He stressed Washington's "ironclad commitment" to Israel's security, saying that was also in the United States' national security interest, but added: "That's particularly why we find its actions so befuddling when it takes actions, such as continued settlement activity, that run counter to what we're all trying to achieve here."
Is anyone else concerned?
UN Secretary General Ban Ki-moon also condemned the Israeli announcement.
"He's particularly concerned that the establishment of a new settlement near Shilo will make the prospect of a viable, contiguous Palestinian State more remote," a statement from his office said.
"Settlements are illegal under international law, and such decisions run counter to Quartet recommendations. The Secretary General urges Israel to halt and reverse such counterproductive decisions in the interest of peace and a just final status agreement."
The Quartet refers to the UN, US, EU and Russia.
What does Israel say about the peace process?
"Israel remains committed to a solution of two states for two peoples, in which a demilitarized Palestinian state recognizes the Jewish state of Israel," said Israel Ministry of Foreign Affairs spokesman Emmanuel Nahshon.
"The real obstacle to peace is not the settlements -- a final status issue that can and must be resolved in negotiations between the parties -- but the persistent Palestinian rejection of a Jewish state in any boundaries."