Palestinian Authority President Mahmoud Abbas has condemned Israel's planned "Jewish-State" bill as an obstruction to peace between Israelis and Palestinians.

The law, which has been approved by the Israeli cabinet, has been a source of controversy with opponents stating it would only give "national rights" to Jews and none of the minorities which reside in the country.

"The discussion on the nation-state [bill] puts obstacles in the way of peace," Abbas said. "It has met fierce opposition inside the Israeli government, Knesset and among the Israeli people."

"We do not want to harm anyone... Still, we do not want anyone to harm our people and our holy sites, the Islamic, Christian and Jewish ones," Abbas added.

"For us, all of them are sacred and therefore, we will not allow anyone to harm them."

The law is set to recognise Israel's supposed Jewish character, despite Arab Muslims and Christians making up 20% of the country's population, and delist Arabic as a second language of the country.

Israeli Prime Minister Benjamin Netanyahu defended the bill as an answer to those who questioned Israel's Jewish credentials.

"There are many who are challenging Israel's character as the national state of the Jewish people. The Palestinians refuse to recognise this and there is also opposition from within," he said.

"There are those, including those who deny our national rights, who would like to establish autonomy in the Galilee and the Negev.

"Neither do I understand those who are calling for two states for two peoples but who also oppose anchoring this in law. They are pleased to recognise a Palestinian national state but strongly oppose a Jewish national state."

Its approval followed weeks of Arab-Jewish violence in Jerusalem with an attempted assassination of a far-right Jewish activist, the suspected lynching of a Palestinian bus driver and a deadly Palestinian attack on a synagogue that killed five Israelis.