JERUSALEM, July 9 (Jeffrey Heller/Reuters) - A government-appointed committee on Monday proposed granting official status to dozens of unauthorized settler outposts in the West Bank, challenging the world view that Israeli settlement there is illegal.

The non-binding legal opinion, which Prime Minister Benjamin Netanyahu had sought, could be used by the right-wing leader to address criticism at home and abroad of his declared plans to build more homes for Jews on land Palestinians want for a state.

Three months ago, his governing coalition drew Palestinian and international condemnation when it retroactively legalized three West Bank outposts built without official sanction.

But the panel, chaired by a former Israeli Supreme Court justice who has written pro-settlement opinions from the bench, reaffirmed Israel's long-held view that the West Bank is not occupied territory and that settling Jews there is legal.

The opinion, yet to be formally accepted by the government and swiftly disputed by the Palestinians, flew in the face of a World Court ruling that all settlements are illegal because of their location on occupied land.

The Israeli committee disputed that ruling, arguing Israel's control of the West Bank does not constitute occupation as no country had sovereignty over the territory when it was captured from Jordan in a 1967 war.

Therefore, according to international law, Israelis have the legal right to settle in Judea and Samaria and the establishment of settlements cannot, in and of itself, be considered to be illegal, it said, using the Biblical names for the West Bank.

Jordan captured the West Bank, which had been part of British-mandated Palestine, in the 1948 Arab-Israeli war and annexed it in a move that never won international recognition.

Israel has built some 120 settlements in the West Bank. Dozens of unauthorised outposts, which past Israeli governments had pledged to remove, have also gone up in the territory.

PALESTINIAN ANGER

Palestinians say the enclaves will deny them a viable and contiguous state, a view that has won wide international support. Their peace talks with Israel collapsed in 2010 over the settlement issue.

All settlements are illegal according to international law and international resolutions, Nabil Abu Rdeineh, a spokesman for Palestinian President Mahmoud Abbas, said of the committee's report.

The Israeli government must cease settlement activity and curb settler attacks and adhere to international resolutions if it wants to achieve peace, Abu Rdeineh added.

Addressing the issue of unsanctioned settlement outposts, the committee echoed a 2005 government report in determining that they had been established with the knowledge, encouragement and tacit agreement of the most senior political level.

But unlike the 2005 document, which said quiet government support and funding for unauthorized settlements were illegal, the new report recommended expanding them.

The time had come, it said, to complete formal planning and zoning procedures and to set the municipal jurisdiction of each outpost, taking into consideration their growing populations.

Pending completion of those proceedings and examination of the possibility of granting valid building permits, the state is advised to avoid carrying out demolition orders, the panel said.

Yariv Oppenheimer of the anti-settlement group Peace Now said the panel had delivered the goods for the Israeli right.

The legal world is a wonderful one, just choose a position and you will always be able to find a legal expert who can defend it, he said on Army Radio. The committee has forgotten that there are 2.5 million stateless Palestinians under Israeli military rule. (Additional reporting by Ali Sawafta in Ramallah; Editing by Andrew Osborn)