Israel Prime Minister-elect Benjamin Netanyahu and the leader of the extreme-right Otzma Yehudit ("Jewish Strength") movement Itamar Ben-Gvir agreed on Wednesday to amend a law to allow Israelis to move to a settlement in the occupied West Bank.
Homesh was one of four West Bank settlements - deemed illegal by most of the international community - that were evacuated as part of a 2005 unilateral disengagement by Israel which saw it also evacuate the Gaza Strip, reported Haaretz.
Despite this, unauthorised settlers continued to operate in Homesh, fuelling tensions with local Palestinians.
Today, nearly 500,000 Israeli settlers live in more than 130 settlements scattered across the West Bank, considered illegal under international law.
Netanyahu and Ben-Gvir also agreed that the necessary infrastructure will be provided for a series of illegal settlement outposts - which the premier has agreed to recognise - within 60 days after the government formation, said Haaretz.
Outposts, built by Israeli settlers without government authorisation, usually on land seized from private Palestinian owners, have gained recognition from the Israeli government before.
Netanyahu is expected to be at the helm of what is likely to be the most extreme-right government in Israel's history, with a coalition including Ben-Gvir and Belazel Smotrich, who are both known for their incendiary hate speech against Palestinians.
Ben-Gvir was convicted of supporting a terror group and inciting racism in 2007. He has publicly expressed admiration for Baruch Goldstein, a settler who killed 29 Palestinians at the Ibrahimi Mosque in Hebron, as well as Jewish prayers at the Al-Aqsa compound in Jerusalem.
The decision to move settlers back into Homesh is expected to stoke further tensions with Palestinians in the occupied West Bank, who are already the target of near-daily deadly raids by Israeli forces.