Israel argues that handing back the territory, used by Syria as a shelling position, would be a strategic threat. Just over half the population are Arabic-speaking Druze, who live alongside Israelis who have settled there since 1967.
"This is a historic day. We are going to do two things - establish a new community on the Golan Heights, something that has not been done for many years. This is an act of Zionism and it is paramount," said Netanyahu. "The second thing is to honour our friend, a very great friend of the State of Israel - President Donald Trump, who recently recognised Israel's sovereignty over the Golan Heights."
Last week, Netanyahu's Government approved a resolution to begin planning for the community, although little can be done while Israel is in the throes of a second election cycle, less than two months after it held a general election. Netanyahu appeared to have won the April 9 race, but was unable to form a coalition. On May 29, he was forced to call for another election, to be held on September 17.
At the ceremony, which was also attended by US Ambassador David Friedman, a gold rimmed plaque displaying the name of the new community in Hebrew and English was unveiled.
Friedman, a staunch supporter of Israel, called the creation of a new community in Trump's honour "an extraordinary gesture."
On March 25, while Netanyahu was visiting the White House ahead of the first election, Trump signed a proclamation recognising Israel's hold on the plateau. Some saw the move as timed to help the long-serving Israeli leader in his re-election bid.
Following his election victory on April 9, Netanyahu declared that he would establish a new town named for the president.
"All Israelis were deeply moved when President Trump made his historic decision to recognise Israel's sovereignty over the Golan Heights," said Netanyahu in a video. "I intend to bring to the government a resolution calling for a new community on the Golan Heights, named after President Donald J. Trump."