Activists said they wanted to build a village called Bab al-Shams at the site.
The construction plans drew unusually sharp criticism from some of Israel's staunchest allies including the U.S. who strongly oppose the E- 1 project.
Israeli officials have said actual construction on the project may be years away if it ever gets off the ground, while Israeli critics have questioned whether Israeli Prime Minister Benjamin Netanyahu actually intends to develop E-1, or is pandering to hard-liners ahead of Israel's Jan. 22 election.
In a separate incident Saturday, the Israeli military said soldiers shot at a Palestinian who "tried to infiltrate Israel" from the West Bank. The military said soldiers called on the man to stop, then fired warning shots in the air, and finally fired at his legs when he refused to stop.
Palestinian police said he later died of his wounds.
It was the second shooting death on the borders with the Palestinian territories in two days. On Friday, Palestinian officials in the Gaza Strip said a man was shot and killed near the coastal territory's border fence. The Israeli military said he was part of a group that rushed the fence to damage it.