A special panel will propose that the government give grants for building hotels in West Bank settlements near Jerusalem to absorb some of the the high demand for hotel rooms in the capital.

A new interministerial committee of experts convened this year to designate priority areas for the coming years; it is expected to hand its proposals to the cabinet soon. According to a separate study, Jerusalem could suffer a shortage of accommodations in the future.

The "administrative grants," as they are known, provide state support for 20 percent of the cost of construction of hotels with at least 25 rooms. They provide 10 percent support for construction of other tourist attractions.

Grants have only been provided within Israel proper, not the West Bank. In 2007, a special committee mapped out the country's priority areas that were eligible for grants.

The recommendations were to remain in force until last year, but they were extended for another year based on a joint order by the tourism and finance ministers. This year the budget for such grants is NIS 76 million.

Although the interministerial panel has not yet submitted its recommendations, the cabinet is shortly expected to approve administrative tourism grants in the West Bank for the first time.

Officials at the Tourism Ministry are studying a draft resolution on the subject recommending that the hotel shortage be alleviated via construction of accommodations in the Jewish settlement of Ma'aleh Adumim, just outside Jerusalem, and in the Gush Etzion settlement bloc to the south.

The Tourism Ministry said it is exploring ways to increase the supply of hotel rooms in the Jerusalem area due to high demand for existing accommodations in the city. "When this matter is operative, the public will be informed," the ministry said.

"Jerusalem, which is included in the map [of priority areas], is enjoying growing demand among tourists, a fact that creates demand pressure on hotel rooms in the city and results in increased prices," the draft states.

The document also cites a 2010 study commissioned by the Tourism Ministry that projected shortages of hotel rooms in Jerusalem.

The construction of an additional 9,500 hotel rooms should be undertaken as soon as possible, the draft recommends. It cites the current construction of about 900 rooms in the Jerusalem area and a request for approval of another 800.

This isn't enough to meet future demand, so additional locations near the city must be found for hotels, the document states.

The draft says the construction of accommodations in Gush Etzion and Ma'aleh Adumim will relieve demand for existing hotels in the city itself.

As far as is known, there are no plans to build hotels in Ma'aleh Adumim or Gush Etzion, but if the recommendation is approved, grants would be provided for such projects for three years beginning in January.

The proposal does not discuss funding sources for the grants in the West Bank, and it is assumed the grants would come from the existing budget.