Even as settlers were hauled from Gaza rooftops, the Israeli Ministry of Justice gave the all-clear to extend the 680km (425-mile) barrier in a loop east of Jerusalem.

Palestinians protested that separating East Jerusalem from Palestinian towns would cripple chances of a viable state.

Israel says that the barrier is vital to keep out suicide bombers and cement Ariel Sharon’s policy of disengagement.

The Palestinian Authority fears that Mr Sharon has a hidden agenda to tighten his grip on West Bank settlements near Jerusalem and Tel Aviv.

Copies of confiscation orders were sent to the Palestinian mayors of the villages of Abu Dis, a-Tur and el-Eizariya by the Israeli military commander who said that they were “necessary for military requirements . . . and the need to take measures to prevent terror attacks”. The mayors were invited to apply for compensation.

The razor wire and concrete, costing £1 million a mile, will move 15km into the West Bank. The East Jerusalem loop was approved in February.

Rachel Naidek-Ashkenazi, a Ministry of Defence spokeswoman, said: “If we don’t receive any objections, and probably there won’t be any because most of the land belongs to the State, then work will commence next week.”

The orders were denounced by the Palestinians. Saeb Erekat, the chief Palestinian negotiator, said: “Such decisions will serve only to undermine any efforts to resume [peace] negotiations. This will destroy President Bush’s vision of a two-state solution.”

Central to Israel’s plan is E1: a hill where it plans to expand the Maale Adumim settlement by building 3,500 homes. The proposal was criticised in April by America, which reminded Israel of its obligations to freeze all settlement activity. But The Times has found extensive building at the site, including roads and a bridge connecting it to Maale Adumim. Benny Kashriel, the Mayor of Maale Adumim, said: “One hundred per cent this place will be built.”

Michael Tarazi, of the Palestine Liberation Organisation, said: “The wall is designed to maximise the amount of undeveloped Palestinian land that Israel intends to confiscate. We are talking about a carving away of Jerusalem, which is our economic, spiritual and healthcare hub.”

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