"It is important that the whole world knows that the people of Israel and its friends in the world stand together in their loyalty to Jerusalem and our heritage, are determined in our positions, stand up for our security, and extend our hand for a real peace with our neighbors," The Jerusalem Post quoted Prime Minister Binyamin Netanyahu as saying.
"Jerusalem is one of the foundations of Israel's unity."
Netanyahu's statements came amid Palestinian efforts to be declared an independent state in the United Nations in September with east Jerusalem as its capital.
During his visit to Washington last week, Netanyahu declared any peace agreement with the Palestinians "must leave Israel with security, and therefore Israel cannot return to the indefensible 1967 lines." During the 1967 war, Israel gained control of east Jerusalem and has insisted it will remain the unified capital of Israel.
Netanyahu, speaking at a special Cabinet session conducted at the Tower of David in Jerusalem's Old City, said Jerusalem is the heart of the nation, Haaretz reported.
The site of Sunday's Cabinet meeting was chosen to mark Wednesday's Jerusalem Day, which will celebrate the 44th anniversary of the reunification of the capital after the Six Days War.
Netanyahu said the government intends to boost investments in the capital to strengthen it economically and focus on tourism and high tech, The Jerusalem Post said.
Additional funding will be allocated to schools and universities in the capital, the English-language newspaper said.