In the first concrete attempt to counter the contentious new law legalizing thousands of West Bank settlement homes, two Israeli rights groups on Wednesday asked the country's Supreme Court to overturn the measure.
The Israelis offered the Palestinians a settlement that included East Jerusalem and most of the West Bank.
The bill passed on a vote of 60 to 52.
Although bill seeks to compensate Palestinian owners financially or with other land, it is viewed by them as a means to "legalise theft".
Palestinian president Mahmud Abbas on Tuesday called a new Israeli law legalising dozens of Jewish outposts built on private Palestinian land an "attack against our people". Failing to mention Netanyahu, Melman said, "reinforces the assessment" that the prime minister and some of his ministers voted in favor of the law out of fear of upsetting right-wing voters.
Prior to the vote, Israeli opposition leader Isaac Herzog announced that, if passed, the bill would "endanger Israeli army officers and drag Israel to the International Court of Justice in The Hague".
Israel's attorney-general has also warned that it is unconstitutional.
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In Washington, a White House official said that, given the new law is expected to face challenges in Israeli courts, the United States would withhold comment for now. He added, "The law creates a de facto annexation contrary to all global obligations of Israel".
He added that 75 countries and global organizations had affirmed in January that the two-state solution was the preferable option for resolving the conflict between Israelis and Palestinians.
Cohen said it was not unprecedented for Israel to hire a private lawyer and that because the case involves the Knesset, its legal adviser can defend the law in court.
Israeli Attorney General Avichai Mandelblit has himself warned the government that the law may be unconstitutional and risks exposing Israel to worldwide prosecution for war crimes. However, it said it had not yet formed an official position on the settlements issue.
Global law views all settlements in the West Bank and East Jerusalem as illegal.
Former state prosecutor Talia Sasson, who in 2005 spearheaded an inquiry into outposts said: "The state of Israel, when we are talking about Israel, has no sovereignty over there".
Mr Trump did appear last week to moderate his staunchly pro-Israeli position, saying that the construction of new settlements "may not be helpful" to the peace process.