The government is proposing that it uproot Migron, one of the largest West Bank settlement outposts.
Under the plan, Israel would move Migron's more than 40 families to Adam, an existing settlement near Jerusalem.
Israel has pledged to remove some two dozen unauthorized outposts in the West Bank, including Migron. But so far, it has not taken action. Migron is considered a key test of Israel's willingness to remove the outposts.
Israeli defense officials say Prime Minister Ehud Olmert visited Adam on Tuesday and approved the proposal. Officials are expected to present the deal to the Supreme Court on Wednesday.
Israeli human rights lawyer Michael Sfard says the proposal is unacceptable because it would effectively create a new settlement. Sfard has been leading a legal battle to uproot Migron.
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