Israel has taken a step towards expanding the largest settlement in the West Bank, a move Palestinians warn will leave their future state unviable and further isolate its future capital, East Jerusalem

The Israeli Peace Now group, which monitors settlement growth, said it had obtained plans drawn up by experts that the interior ministry had commissioned which call for expanding the sprawling Maale Adumim settlement near Jerusalem southward by 1200 hectares, placing what is now the separate smaller settlement of Kedar within Maale Adumim's boundaries.

The expansion is on a highly sensitive piece of real estate that both sides see as holding the key to whether the Palestinians will have a viable state with their own corridor between the north and south parts of the West Bank.

Israeli plans also call for expanding Maale Adumim northward in an area known as E1, but US opposition has thus far stopped Israel from building residential buildings there, although a police headquarters has been established.

The new plan, if approved by the interior minister, Eli Yishai, will help pave the way for the building of 6000 housing units between Maale Adumim and Kedar and on other lands to be annexed by Maale Adumim, says Peace Now staffer Hagit Ofran. "What they have in their minds is the expansion of Maale Adumim and this is one step towards that," Ms. Ofran said of government planners

The Palestinian MP Hanan Ashrawi said the plan was "extremely dangerous". She said that the new plan, combined with Israeli plans to build at E1, plans to demolish 88 houses in the Silwan neighborhood of East Jerusalem on grounds they were built without permits, the planned eviction of Palestinian families in the Sheikh Jarrah neighbourhood and other steps reflect "a mad rush to expand settlements to complete the isolation and siege of Jerusalem. Israel is destroying any chances of an agreement."

Hizki Zisman, a spokesman for the Maale Adumim municipality, said making Kedar part of Maale Adumim is an administrative matter of uniting local authorities and does not involve expropriating more land from Palestinians. He said the panel recommendation was "professional, not political" and that there was a great need to expand the settlement because of young couples needing bigger apartments.

An aide to Mr Yishai said the plan to make Kedar part of Maale Adumim arrived on the minister's desk yesterday and he had not yet taken a decision on it.

Mr Yishai, from the ultra-orthodox Shas party, is supportive of settlement activity but the timing for expanding Maale Adumim may not be propitious given the international scrutiny of the new right-wing Israeli government. An official in the Prime Minister's office declined to say what the attitude of the Prime Minister, Benjamin Netanyahu, was to the expansion: "Prime Minister Netanyahu has ordered a comprehensive review on a host of issues including settlements and the attitude towards peace talks. This will take a few weeks."

Ms Ofran said expanding Maale Adumim to include Kedar was also aimed at making the route of the West Bank separation barrier that is still being constructed penetrate deeper into the occupied territory.

Israel says the barrier is aimed at thwarting suicide bombers but the International Court of Justice has ruled it illegal, for being built inside the West Bank.

The Israeli supreme court is deliberating on the route of the barrier in the Maale Adumim area and received a recommendation from the relatively dovish Council for Peace and Security – made up of former senior security officers – that Kedar should not be included within the fence.

"If the fence is supposed to become the border of Israel, than making Kedar part of Maale Adumim expands the border," Ms Ofran said.

Meanwhile, the Netanyahu government yesterday adopted a rejectionist approach to peace talks.

The Foreign Minister, Avigdor Lieberman, ruled out opening negotiations with Syria unless it dropped all its pre-conditions relating to the Golan Heights. Days earlier, he said that Syria was not a "genuine partner for peace".

Syria recently said it would be willing to resume indirect talks as long as they focused on a complete Israeli withdrawal from the Golan Heights, which Israel captured in 1967.