NGO Ir Amim described the plan to develop the Arab Al-Sawahra neighbourhood as the largest planning procedure for east Jerusalem Palestinians since Israel seized the territory in the Six-Day War.
Aviv Tatarsky, a researcher for Ir Amim, which works for an "equitable" sharing of Jerusalem between Israelis and Palestinians, hailed the move, approved Monday by the interior ministry's district committee.
A municipal statement said the plan was part of "Mayor Nir Barkat's policy of unifying Jerusalem by reducing the gaps existing in the eastern part of the city, upgrading the standard of living and assuming responsibility for all activities... In Arab neighbourhoods."
According to Tatarsky, they enable Palestinians to build homes on their privately owned lands by rezoning from "open space" to "residential."
Tatarsky said landowners would now have to plan the homes and receive approval and that it would take years until construction can begin.
He said Palestinians in east Jerusalem suffer severe shortages of private and public structures due in part to Israel's control over the contested territory.
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