The agreement was fiercely opposed by Israeli Prime Minister Benjamin Netanyahu, who has cheered as Trump re-imposed stringent new sanctions on the country that Israel regards as an existential threat.
The Palestinians strongly criticized Netanyahu's comments.
Global law views the West Bank and East Jerusalem as "occupied territories" and considers all Jewish settlement-building activity there as illegal.
In March, President Trump broke with decades of worldwide consensus by recognizing Israeli sovereignty over the Golan Heights, territory Israel captured from Syria. In his first year in office, Trump had also recognized Jerusalem - the disputed city claimed as capital by both Israeli and Palestinian people - as Israel's capital, breaking with decades of USA foreign policy.
Taking Netanyahu at his word, Palestinians seeking statehood in the West Bank, Gaza and East Jerusalem called his settlement annexation remarks a violation of global law regarding occupied territory. Both moves delighted Israel, infuriated Palestinian and Arab leaders, and were opposed by most United States allies. "This is the end of any chance of peace".
"Netanyahu's dreams of annexing the West Bank will never be achieved and we will not allow that to happen", he said.
"For the past 10 years, Netanyahu has blocked applying Israeli law to even a centimeter of land", Bennett tweeted.
Asked by his interviewer if that meant he would annex the settlement blocs, Netanyahu said yes, but that he would not stop there.
At the local high school, Harel Levi, 18, was not so sure.
Trump says China trade talks ‘moving along very nicely’
The two countries are working to end a standoff that has shaken financial markets and darkened the outlook for the world economy. President Donald Trump says the United States has found agreement on some of the toughest points in trade talks with China .
Netanyahu has promoted Jewish settlement expansion in his four terms as prime minister, but until now refrained from presenting a detailed vision for the West Bank, seen by the Palestinians as the heartland of a future state. The settlements have also been the most contentious sticking point in the peace negotiations between Israeli and Palestinian leaders, and the talks have remained stalled since 2014. The area is now home to more than 400,000 Israelis.
The Palestinians and many countries consider this to be illegal under the Geneva Conventions that bar settling on land captured in war.
Trump has teased the long-promised USA peace proposal as the "deal of the century", but it will undoubtedly be as Netanyahu-sided as everything else the Trump administration has done when it comes to Israel.
Palestinians argue that Washington did not do enough in practice to press for settlements to be curbed. He suggested the Palestinians may take Israel to the International Criminal Court.
And they warned that Netanyahu's sharp Right turn could just be empty campaign promises.
Mr Netanyahu mentioned the recent USA recognition of Israeli sovereignty over the occupied Golan Heights as an achievement.
It was the first time in 10 years that Netanyahu had met with LGBT activists.
Israel Katz, the acting foreign minister and a member of Netanyahu's Likud party, said its "great fear" was a split in the right-wing vote that would result in a second-place finish behind the centrist Blue and White faction.
President Donald Trump's administration is preparing to unveil a long-awaited Middle East peace plan, which USA officials say will be fair. No one party has ever won a ruling parliamentary majority on its own in an Israeli election.