The Associated Press
Netanyahu was speaking during a visit to Gilo after Israeli approval for the construction of 800 Jewish homes there sparked a sharp condemnation from EU foreign affairs chief Catherine Ashton. She is to visit Israel today.
Israel captured Gilo from Jordan in the 1967 Mideast war. Then it annexed the area to Jerusalem in a move that has not been recognized internationally. The area is close to Bethlehem in the West Bank.
Netanyahu said Jerusalem is "Israel's eternal capital" and that Israel has every right to build there.
"We have built in Jerusalem, we are building in Jerusalem and we will continue to build in Jerusalem, this is our policy, and I will continue to support building in Jerusalem," Netanyahu said.
Jerusalem Mayor Nir Barkat thanked Netanyahu for the resources to allow development and growth. "We will continue to build tens of thousands of apartments throughout the city," he said.
The fate of Jerusalem is one of the most emotional issues in long-stalled Israeli-Palestinian peace efforts, because key sites there are sacred to Jews, Christians and Muslims.
Palestinians claim the eastern part of Jerusalem as the capital of their future state, along with the West Bank and the Gaza Strip. Israel says east Jerusalem is an inseparable part of its capital, citing biblical and security reasons.
Palestinians are refusing to resume peace talks unless Israel stops building in areas they claim. Israel says all issues, including territorial disputes, must be resolved through negotiations.