The move could result in some 4. Mr Netanyahu has said Israeli sovereignty will not be applied to Palestinians in the Jordan Valley, and reports say the same exclusion will extend to Palestinians in other annexed parts of the West Bank.
However, the Palestinians seek the whole of the West Bank - to which they claim an historical right - for a future independent state, along with the Gaza Strip. Any annexation by Israel, they argue, would leave Palestinian areas fragmented and the Palestinian people with considerably less land for a country of their own.
Israel claims historical and religious rights to the West Bank as the ancestral land of the Jewish people. It also says its presence there - especially in the Jordan Valley - is strategically vital for its self-defence.
It says settlements are not an obstacle to peace and that they would remain part of Israel under any peace deal with the Palestinians, whether they are annexed now or not.
Mr Netanyahu has long championed the settlements and through annexation wants to remove any doubt as to their fate, something which strongly appeals to his political base. Until recently, Mr Netanyahu would have faced solid opposition among the international community to such a move.
However, Donald Trump's Israeli-Palestinian peace plan, unveiled in January, allows for Israel to "incorporate" all the settlements - something no previous US administration had countenanced. An agreement which returned Mr Netanyahu to office as head of a national unity government in May set 1 July as the date from which the annexation process could be initiated. Assuming it happens Israel and the US are still deliberating exactly when and how , the settlements and surrounding areas will become permanent parts of Israel at least, from Israel's position.
Reversal would require the support of a large majority of Israeli MPs, something which is very unlikely. In practice, Israeli laws already apply to settlers, though not to Palestinians, who are subject only to Israeli military orders and Palestinian laws, so there would be little noticeable change in that respect. One of the most significant differences annexation would likely make is in settlement construction - long one of the thorniest issues between Israel and the Palestinians.
Currently, building and zoning in the West Bank requires the approval of Israel's defence minister and prime minister, and can take months or years. Following annexation, it would become a local matter and consequently easier for Israel to build there.
Beyond the annexed areas, the Israeli military will continue to exercise overall authority - something Palestinians say has deprived generations of their basic civil rights. By and large, Israel has been warned by friend and foe alike not to go ahead with annexation. There are fears that such a move will put peace between Israel and the Palestinians even further out of reach.
Additionally, Israel has appropriated West Bank land to build a network of roads connecting settlements to Israel and to each other.
These roads are generally off-limits to Palestinian drivers, hampering their freedom of movement and making travel within the West Bank more difficult and time-consuming.
The Israeli army security checkpoints that dot the West Bank, which are meant to protect Israelis from terror attacks , also restrict and complicate the ability of Palestinian people to move around. Israelis choose to live in the West Bank for many reasons. The popular stereotype of Jewish settlers as religious fanatics determined to reclaim the entire ancient homeland they believe was given to Jews by God is not quite accurate.
Still, these fervent settlers are a vocal and highly visible minority. They generally live in smaller settlements, located deep inside the West Bank. Most Jewish settlers in the West Bank, however, live there for economic reasons. Israeli government investment and incentives aimed at encouraging Jews to settle there have made the cost of living lower than inside Israel.
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