The prime minister's statements came just days after the international community criticized Israel's plans to build 800 new housing units in the neighborhood, which is beyond the 1967 lines in East Jerusalem.
"United Jerusalem is Israel's eternal capital. We have the full right to build in it. We built in Jerusalem, we are building in Jerusalem and we will continue to build in Jerusalem," The Jerusalem Post quoted Netanyahu as saying.
His statements came just a day before he is due to meet with European Union foreign policy head Catherine Ashton, who Friday criticized Israel's building plans, saying "settlements are illegal under international law and threaten to make a two-state solution impossible," the Post said.
Ashton's remarks indicate a lack of basic understanding of the reality in the region, Israel Radio quoted Israeli Foreign Minister Avigdor Lieberman as saying.
In response to the EU's condemnation, Netanyahu said at Sunday's cabinet meeting "just as they build in London, Paris, Washington and Moscow, we will continue to build in Jerusalem."
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