JERUSALEM  - Israeli authorisations for the construction of Jewish settler homes in east Jerusalem reached their highest number in a decade in 2011, an Israeli NGO said in a new report released on Tuesday.

Peace Now, which opposes settlement construction, said Israel gave final approval for the construction of 3,690 homes in occupied Arab east Jerusalem in 2011, despite Palestinian and international condemnation.

The figures dwarf final authorisations for east Jerusalem settlement homes over the previous decade. The closest number was in 2002, when the Jewish state approved 2,653 new homes. The report, entitled "Torpedoing the Two-State Solution," said plans for another 2,660 east Jerusalem homes were released for public consultation in 2011, while construction began on 55 units located deep inside Palestinian neighbourhoods.

Israel captured east Jerusalem, along with the West Bank and Gaza, during the 1967 Six-Day War and considers all of Jerusalem its "eternal, undivided" capital. The Palestinians want east Jerusalem as the capital of their promised state, and furiously denounce new settlement construction in the eastern sector of the city, as well as in the West Bank. Overall, settlement construction in the West Bank rose in 2011, the watchdog said, citing a 20-percent rise in construction starts across the territory.

It tracked 1,850 building starts for housing units, and said construction continued on another 3,500 West Bank units over the course of 2011. The international community considers all Israeli settlement on occupied land to be illegal under international law. But Israel has consistently defended building in east Jerusalem and said that existing West Bank settlements need to expand in order to accommodate the "natural growth" of families living there.

Peace Now said the right-wing government of Israeli Prime Minister Benjamin Netanyahu had also acted to legalise settlement outposts that are illegal under Israeli law because they are built without government permission.

The government had announced plans to legalise 11 outposts which are home to 2,300 settlers, while also saying it would delay the evacuation of three outposts built either fully or partially on private Palestinian land, the watchdog said.

And the government had also pledged to legalise hundreds of homes built without a permit in existing West Bank settlements.

"The Netanyahu government is promoting several plans precisely in disputed areas which could prevent the possibility of establishing a Palestinian state alongside Israel," the report charges.

Settlement construction has proved a consistent sticking point in talks between Israel and the Palestinians. Direct talks that began in September 2010 quickly broke down over the settlement issue.

Israel declined to renew a partial settlement freeze that expired in 2010, and the Palestinians say they will not hold talks while the Jewish state continues to build on land they want for their future state.