TEL AVIV, Israel — Israel gave final approval Wednesday for a controversial settlement project in the occupied West Bank that would effectively cut the territory in two, and that Palestinians and rights groups say could destroy hopes for a future Palestinian state.

Settlement development in E1, an open tract of land east of Jerusalem, has been under consideration for more than two decades, but was frozen due to U.S. pressure during previous administrations. The international community overwhelmingly considers Israeli settlement construction in the West Bank to be illegal and an obstacle to peace.

Will Jarrett / AP / AP

Far-right Finance Minister Bezalel Smotrich, a former settler leader, cast the approval as a rebuke to Western countries that announced their plans to recognize a Pal

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