Plans to expand a West Bank settlement by up to 2,500 homes drew Palestinian condemnation Monday and presented an early test for President Obama, whose Middle East envoy is well known for opposing such construction.

Israel opened the way for possible expansion of the Efrat settlement by taking control of a nearby West Bank hill of 423 acres. The rocky plot was recently designated state land and is part of a master plan that envisions the settlement growing from 9,000 to 30,000 residents, Efrat Mayor Oded Revivi said.

Israeli officials said any new construction would require several years of planning and various stages of approval.

The outgoing government of Prime Minister Ehud Olmert has said it reserves the right to keep building in large West Bank settlement blocs that it wants to annex as part of a final peace deal with the Palestinians. Efrat is in one of those blocs. Israel occupied the West Bank in the 1967 Middle East war. Palestinians envision the territory as part of their future state.
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The composition of Israel's next government is not yet clear because last week's elections were inconclusive. But right-wing parties have a better chance of forming a ruling coalition, with hard-line leader Binyamin Netanyahu as prime minister.

Speaking to U.S. Jewish leaders Monday, the two contenders for leading the new Israeli government expressed their differences over the Palestinian issue.

Foreign Minister Tzipi Livni, whose centrist Kadima party won 28 of the 120 seats in parliament, said Israel must withdraw from "parts of the Land of Israel," a reference to the West Bank, in a peace deal.

Netanyahu, whose hawkish Likud party won 27 seats, said he does not want to govern Palestinians but insisted on Israeli control of borders, airspace and electronic communications.

Netanyahu supports settlement expansion and has derided peace talks with the Palestinians as a waste of time, saying he would focus instead on trying to improve the Palestinian economy. Palestinian President Mahmoud Abbas has called Netanyahu's approach unacceptable.

"We oppose settlement activity in principle, and if the settlement activity doesn't stop, any meetings [with the Israelis] will be worthless," Abbas said Monday.

Settlement expansion would be likely to create friction with Obama's Mideast envoy, George J. Mitchell, who has long pushed for a freeze on the expansion of Jewish settlements.

Yesh Din, an Israeli human rights group involved in the Efrat expansion case, said Monday that over the years Israel's government has assigned almost all areas designated as state land to settlements. The group said that is a violation of international law, which requires an occupying power to act for the benefit of the local population.