According to a senior-level White House official, Kushner and Greenblatt arrived in Israel this week in an attempt to advance the peace process with the Palestinians.
More than 600,000 Israelis live in settlements in the West Bank, including east Jerusalem, that are seen as a major obstacle to peace between Israel and the Palestinians.
"After decades, I have the privilege to be the prime minister to build a new community", he said.
The prime minister added that there was not, and there would never be, as good a government for the settlements as theirs.
It will accommodate some 40 families whose homes were cleared from the unauthorised settler outpost of Amona.
Israel decided in March to build Amichai, which means "My People Live", and in recent weeks it has approved plans for more than 3,000 settler homes elsewhere in the West Bank.
Palestinian Authority spokesman Nabil Abu Rudeineh said the move showed that Israel was trying to stop the Trump Administration's efforts to renew peace talks and said it is a "serious escalation" of settlement building. The settlements are considered illegal under worldwide law, though Israel disputes this.
In Israel last month, Trump was silent on settlements, at least publicly.
Greenblatt, an Orthodox Jew who was Trump's real-estate adviser, is soft on settlements and was even an armed guard at a West Bank yeshiva he studied at in the 1980s.
Palestinians vociferously object to the establishment of a new West Bank settlement, saying all such settlement-building activity hurts the prospects for a two-state solution.
Robert Piper, UN humanitarian coordinator for the Palestinian territories, last week, warned that Palestinians were being "held hostage to this longstanding Israeli siege".
Trump previously asked Netanyahu during a February visit to the White House to "hold back on settlements for a little bit" amid renewed USA efforts to broker peace in the region.
By highlighting the earth-moving work - no date has been announced for actual housing construction - Netanyahu appeared to suggest he believed he had little to fear from U.S. President Donald Trump's administration over settlement building that has drawn Palestinian and global condemnation.
An IEC spokeswoman confirmed a cutback had begun, in line with the West Bank-based Palestinian government's decision to cover only 70% of the monthly cost of Israeli electricity supplies to the Gaza Strip. Israel also cites biblical, historical and security interests to defend settlements.