"Sharon and Mofaz have given their go-ahead to the construction of these buildings" in Maale Adumim, a ministry spokesman told AFP.

Maale Adumim, which is situated close to Jerusalem on the road to Jericho, is home to 28,000 Jewish residents.

Under the terms of the US-backed roadmap peace plan, Israel is obliged to freeze all settlement activity in the occupied territories.

According to the Maariv newspaper, the housing ministry had received instructions not to publish public tenders to avoid upsetting the Americans.

Meanwhile, three Palestinian militants were shot dead by Israeli soldiers while planning an overnight attack on a Jewish settlement in the northern Gaza Strip, medical sources said yesterday.

Ambulance teams had been sent to the scene of the shootings on the edge of the Eli Sinai settlements and were awaiting clearance to gather the bodies which could be seen between lying between Israeli tanks, the sources said.

Moreover two suspected Palestinian collaborators were also killed yesterday after a grenade attack at Gaza City's main prison, including one who was later executed by five masked gunmen in his hospital bed.

Mahmud al-Sharif was shot in the head by the gunmen who had burst onto his ward in the city's Al Shifa hospital, sources in the hospital said.

The same sources also said that another of the six wounded prisoners 30-year-old Mussa Auwda, had died of his injuries in hospital.

An Israeli military source had earlier said that troops opened fire on three Palestinian gunmen who had entered an unauthorised area and were approaching a security fence which surrounds the three Israeli settlements in northern Gaza at around 11:30pm (2030 GMT) on Sunday night.

"They were obviously planning some kind of attack and had entered around 100 meters (yards) inside the buffer zone," the source added.