Israeli authorities have approved building permits for 566 settler homes in East Jerusalem.
Israeli Prime Minister Binyamin Netanyahu had reportedly delayed approving the plan last year, due to opposition from Barack Obama.
Then-President Obama had infuriated Israel by allowing a United Nations resolution against settlements to pass, by withholding a potential US veto.
President Netanyahu has spoken to Mr Trump by phone.
Before the call he flagged the issues they'd cover.
"This evening, a phone conversation will be held between President Trump and myself. Many matters face us: The Israeli-Palestinian issue, the situation in Syria, the Iranian threat."
Settlements in East Jerusalem are considered illegal under international law, though Israel disputes this.
Deputy Mayor of Jerusalem, Meir Turjeman, says the build is part of a bigger plan to establish many more settler homes in East Jerusalem.
"Today 566 units were approved and I believe that within the year we will give approval to all 11,000. We will present the plans, we will push them forward. The mayor's goal is to advance these plans as much as possible."
Palestinian leaders condemn the move.
A spokesman for Palestinian Authority President Mahmoud Abbas, Nabil Abu Rudeineh, has called on the United Nations to take action, particularly given the recent Security Council resolution.
For years, the US - along with the UN, Arab League, the EU and Russia - has been promoting a two-state solution to the Middle East conflict.
It would see the creation of an independent state of Palestine within pre-1967 ceasefire lines in the West Bank, Gaza Strip and East Jerusalem.
There are also concerns over Mr Trump's pledge to move the US embassy from Tel Aviv to Jerusalem.
Israel sees the whole of Jerusalem as its capital.
The Palestinians want East Jerusalem as the capital of their future state.
Palestinian leader Mahmoud Abbas has appealed to the US President to keep his embassy in Tel Aviv.
"We say to Mr Trump that we hope he will not move the embassy from Tel Aviv to Jerusalem. Because Jerusalem, from the Israeli point of view, is a united city and this is not correct and illegal. Therefore, moving the embassy to any place will be a step ahead of anything that may happen in the future and will damage the peace process. Also, we hope to stop this and to start negotiations depending on the international legitimacy."
Israeli Cabinet Ministers are also poised to vote on a contentious proposal to annex one of the West Bank's largest Palestinian settlements - the Maaleh Adumim settlement near Jerusalem, currently home to about 40,000 Palestinians.
Hanan Ashrawi, from the Palestinian Liberation Organisation Executive Committee, says moving the US embassy would signal the beginning of the end of an Independent Palestine.
"They are making use of the statements during the Trump elections campaign about recognising Jerusalem as the capital of Israel and therefor legalising Israel's illegal annexation of Jerusalem in order to expand its settlement activities in Jerusalem, particularly in the two areas of Ramat Eshkol and Ramot which would entirely surround East Jerusalem which is occupied Palestinian Territory and would cut it off from the rest of its Palestinian environment, and would bisect the West Bank and therefore prevent the establishment of a territorially contiguous or even viable Palestinian state."
Binyamin Netanyahu is due to meet Donald Trump in Washington early next month.
