The decision was made by the socio-economic cabinet, headed by Finance Minister Roni Bar-On. The panel also set an interim target of 5 percent by 2014.
The Negev and Arava regions will become "national preference" regions for renewable energy, according to the plan put forward by Minister of National Infrastructure Binyamin Ben-Eliezer. Ben-Eliezer's plan calls for the construction of 10 solar power stations in the Negev and Arava between 2010-2020.
Israel has already initiated a process of building solar thermal and photovoltaic power plants at Ashalim, in the Negev desert, that are expected to be operational by 2012.
"Promoting the generation of renewable energy will not only lead to a reduction in the dependency on fossil fuels and the promotion of environmental values but advancing this industry in the south will lead to the development of the periphery in the south," Bar-On said in a statement.
Israel currently produces only 1% of its electricity from renewable sources, while 69% is produced from coal, 23% from natural gas and 7% from diesel fuel or fuel oil, according a report in YNet News.