An Israeli ministerial committee has voted unilaterally to "legalise" settlements on occupied land condemned as illegal by the international community.
Israel's Supreme Court had ruled that the government must evacuate the 40 families who live in the Amona settlement in the West Bank and return the land to its Palestinian owners.
However the committee want to pay the Palestinians compensation for the land, and to grant the settlers the right to remain there.
Israel's attorney-general, Avihai Mandelblit, said the bill was flawed in its current form as it broke property laws.
"The attorney-general told the committee that the bill does not sit with the basic principles of the rule of law as it contradicts the position that the state must respect the judiciary's decisions in individual cases," Mandelblit said, as reported by Reuters.
The vote was condemned by the office of the Palestinian president, Mahmoud Abbas, which said said the leadership would go to the UN security council and "all international organisations" in order to stop it being passed into law.
Israel occupied the West Bank and East Jerusalem in the 1967 Six Day War, and settlements there have been condemned as illegal by the UN. Palestinians say the territory should form part of the Palestinian state, and have demanded the dismantlement of the settlements.
Outgoing US President Barack Obama was highly critical of Israel's settlement policies, but US president-elect Donald Trump has pledged to move the US embassy to Jerusalem, in a move regarded by experts as potentially inflammatory. A key advisor told Israeli media last week that the new administration did not see the settlements as an "obstacle to peace".
Before becoming law, the bill will have to pass through three readings in parliament and be approved by the Supreme Court.
Defence Minister Avigdor Lieberman called for lawmakers to wait until the Trump administration takes office in January.
He said in a statement: "This is the first time that a right-wing government in Israel has a Republican president, and a Republican majority in the Senate and Congress. Therefore we cannot create facts on the ground and embarrass the incoming administration. Everything must be agreed and coordinated."