The decision to build new settlements is a mistake and unacceptable. It will destroy everything and lead to big problems.Nabil Abu Rudeinah, spokesman for Palestinian President Mahmoud Abbas Israel has accelerated plans to build hundreds of new settler homes in response to the killing of a Jewish family in a West Bank settlement at the weekend.

The Cabinet move was aimed at appeasing furious Israeli settlers, but the plan and the deadly attack seem likely to push a peace deal between Israel and the Palestinians even further from reach.

In a meeting called less than 24 hours after the murders, the Israeli Cabinet approved the construction of hundreds of new homes in West Bank settlement blocs, areas Israel intends to have as part of an eventual peace deal.

The deliberate, if hasty, move reflects the pressure faced by Prime Minister Benjamin Netanyahu to respond robustly to the murders amid an outpouring of grief and anger.

Five members of the Fogel family were stabbed to death on Friday night local time in their West Bank home in Itamar, one of Israel's most radical settlements. According to the Israeli military, "Palestinian terrorists" broke through the outer security fence. The intruders set off an alarm, which was checked out but later dismissed.

The parents and three of their children - aged 11, 4 and 3 months - were stabbed to death, while two other sleeping children were left unharmed. The couple's 12-year-old daughter raised the alarm when she returned home.

The Al Aqsa martyrs brigade, the militant wing of the Fatah party that is dominant in the West Bank, claimed responsibility for the killings, calling them a response to the "fascist occupation against our people in the West Bank and Gaza".

Israeli troops hunting the killers, imposed a curfew for a second day in Awarta village, just west of Itamar.

Israeli newspapers splashed gruesome pictures of the bloodied victims across their front pages and tens of thousands of mourners attended the funeral in Jerusalem.

The Palestinian Authority joined the international community in immediately condemning the murders, but reacted with anger to the decision to build more homes in the West Bank, territory which Palestinians want for their future state.

"The decision to build new settlements is a mistake and unacceptable," said Nabil Abu Rudeinah, spokesman for Palestinian President Mahmoud Abbas. "It will destroy everything and lead to big problems."

That view was echoed in Israel's liberal media. "Hundreds of settlements and outposts like Itamar remain on the ground, stuck down the Palestinians' throats," wrote Amir Oren in Haaretz. "The only way to attain peace and security is to remove all the settlements."

The chances of the two sides returning to the negotiating table seem remote in light of the latest attack. Israeli police are on the alert for reprisal attacks by settlers, potentially triggering wider violence.

At the funeral, the mood was defiant.

"There is not a Jewish heart that is not shedding a tear," Chief Rabbi Yona Metzger told mourners. "With whom do we have to sit and talk peace?"