Abir Dandis, the mother of the two girls who were murdered in the Negev town of Al-Fura’a last week, couldn't find a police officer to listen to her warnings, neither in Arad nor in Ma’ale Adumim. Both police stations operate in areas where Israel wants to gather the Bedouin into permanent communities, against their will, in order to clear more land for Jewish communities. The dismissive treatment Dandis received shows how the Bedouin are considered simply to be lawbreakers by their very nature. But as a resident of the West Bank asking for help for her daughters, whose father was Israeli, Dandis faced the legal-bureaucratic maze created by the Oslo Accords.

The Palestinian police is not allowed to arrest Israeli civilians. It must hand suspects over to the Israel Police. The Palestinian police complain that in cases of Israelis suspected of committing crimes against Palestinian residents, the Israel Police tend not to investigate or prosecute them.

In addition, the town of Al-Azaria, where Dandis lives, is in Area B, under Palestinian civilian authority and Israeli security authority. According to the testimony of Palestinian residents, neither the IDF nor the Israel Police has any interest in internal Palestinian crime even though they have both the authority and the obligation to act in Area B.

The Palestinian police are limited in what it can do in Area B. Bringing in reinforcements or carrying weapons in emergency situations requires coordination with, and obtaining permission from, the IDF. If Dandis fears that the man who murdered her daughters is going to attack her as well, she has plenty of reason to fear that she will not receive appropriate, immediate police protection from either the Israelis or the Palestinians.

Dandis told Jack Khoury of Haaretz that the Ma’ale Adumim police referred her to the Palestinian Civil Affairs Coordination and Liaison Committee. Theoretically, this committee (which is subordinate to the Civil Affairs Ministry) is the logical place to go for such matters. Its parallel agency in Israel is the Civilian Liaison Committee (which is part of the Coordination and Liaison Administration - a part of the Civil Administration under the Coordinator of Government Activities in the Territories).

In their meetings, they are supposed to discuss matters such as settlers’ complaints about the high volume of the loudspeakers at mosques or Palestinians’ complaints about attacks by settlers. But the Palestinians see the Liaison Committee as a place to submit requests for permission to travel to Israel, and get the impression that its clerks do not have much power when faced with their Israeli counterparts. In any case, the coordination process is cumbersome and long.

The Palestinian police has a family welfare unit, and activists in Palestinian women’s organizations say that in recent years, its performance has improved. But, as stated, it has no authority over Israeli civilians and residents. Several non-governmental women’s groups also operate in the West Bank and in East Jerusalem, and women in similar situations approach them for help. The manager of one such organization told Haaretz that Dandis also fell victim to this confusing duplication of procedures and laws. Had Dandis approached her, she said, she would have referred her to Adalah, the Legal Center for Arab Minority Rights in Israel, which has expertise in navigating Israel’s laws and authorities.

John Kerry revealed his long-awaited plan for peace in the Middle East on Sunday, hinging on a $4bn (£2.6bn) investment in the Palestinian private sector.

The US secretary of state, speaking at the World Economic Forum on the Jordanian shores of the Dead Sea, told an audience including Israeli president Shimon Peres and Palestinian leader Mahmoud Abbas that an independent Palestinian economy is essential to achieving a sustainable peace.

Speaking under the conference banner "Breaking the Impasse", Kerry announced a plan that he promised would be "bigger, bolder and more ambitious" than anything since the Oslo accords, more than 20 years ago.

Tony Blair is to lead a group of private sector leaders in devising a plan to release the Palestinian economy from its dependence on international donors. The initial findings of Blair's taskforce, Kerry boasted, were "stunning", predicting a 50% increase in Palestinian GDP over three years, a cut of two-thirds in unemployment rates and almost double the Palestinian median wage. Currently, 40% of the Palestinian economy is supplied by donor aid.

Kerry assured Abbas that the economic plan was not a substitute for a political solution, which remains the US's "top priority".

Peres, who had taken the stage just minutes before, also issued a personal plea to his Palestinian counterpart to return to the negotiations.

"Let me say to my dear friend President Abbas," Peres said, "Should we really dance around the table? Lets sit together. You'll be surprised how much can be achieved in open, direct and organised meetings."

Thick locks hug the front gates of shuttered shops, now covered in graffiti and dust from lack of use. Only a handful of customers pass along the dimly lit road, sometimes stopping to check the ripeness of fruits and vegetables, or ordering meat in near-empty butcher shops.

“All the shops are closed. I’m the only one open. This used to be the best place,” said 64-year-old Mustafa Sunocret, selling vegetables out of a small storefront in the marketplace near his family’s home in the Muslim quarter of Jerusalem’s Old City.

Amidst the brightly coloured scarves, clothes and carpets, ceramic pottery and religious souvenirs filling the shops of Jerusalem’s historic Old City, Palestinian merchants are struggling to keep their businesses alive.

Faced with worsening health problems, Sunocret told IPS that he cannot work outside of the Old City, even as the cost of maintaining his shop, with high electricity, water and municipal tax bills to pay, weighs on him.

“I only have this shop,” he said. “There is no other work. I’m tired.”

Abed Ajloni, the owner of an antiques shop in the Old City, owes the Jerusalem municipality 250,000 Israeli shekels (68,300 U.S. dollars) in taxes. He told IPS that almost every day, the city’s tax collectors come into the Old City, accompanied by Israeli police and soldiers, to pressure people there to pay.

“It feels like they’re coming again to occupy the city, with the soldiers and police,” Ajloni, who has owned the same shop for 35 years, told IPS. “But where can I go? What can I do? All my life I was in this place.”

He added, “Does Jerusalem belong to us, or to someone else? Who’s responsible for Jerusalem? Who?”

Illegal annexation

Israel occupied East Jerusalem, including the Old City, in 1967. In July 1980, it passed a law stating that “Jerusalem, complete and united, is the capital of Israel”. But Israel’s annexation of East Jerusalem and subsequent application of Israeli laws over the entire city remain unrecognised by the international community.

Under international law, East Jerusalem is considered occupied territory – along with the West Bank, Gaza Strip and Syrian Golan Heights – and Palestinian residents of the city are protected under the Fourth Geneva Convention.

Jerusalem has historically been the economic, political and cultural centre of life for the entire Palestinian population. But after decades languishing under destructive Israeli policies meant to isolate the city from the rest of the Occupied Territories and a lack of municipal services and investment, East Jerusalem has slipped into a state of poverty and neglect.

“After some 45 years of occupation, Arab Jerusalemites suffer from political and cultural schizophrenia, simultaneously connected with and isolated from their two hinterlands: Ramallah and the West Bank to their east, West Jerusalem and Israel to the west,” the International Crisis Group recently wrote.

Israeli restrictions on planning and building, home demolitions, lack of investment in education and jobs, construction of an eight-foot-high separation barrier between and around Palestinian neighbourhoods and the creation of a permit system to enter Jerusalem have all contributed to the city’s isolation.

Formal Palestinian political groups have also been banned from the city, and between 2001-2009, Israel closed an estimated 26 organisations, including the former Palestinian Liberation Organisation headquarters in Jerusalem, the Orient House and the Jerusalem Chamber of Commerce.

Extreme poverty

Israel’s policies have also led to higher prices for basic goods and services and forced many Palestinian business owners to close shop and move to Ramallah or other Palestinian neighbourhoods on the other side of the wall. Many Palestinian Jerusalemites also prefer to do their shopping in the West Bank, or in West Jerusalem, where prices are lower.

While Palestinians constitute 39 percent of the city’s population today, almost 80 percent of East Jerusalem residents, including 85 percent of children, live below the poverty line.

“How could you develop [an] economy if you don’t control your resources? How could you develop [an] economy if you don’t have any control of your borders?” said Zakaria Odeh, director of the Civic Coalition for Palestinian Rights in Jerusalem, of “this kind of fragmentation, checkpoints, closure”.

“Without freedom of movement of goods and human beings, how could you develop an economy?” he asked.

“You can’t talk about independent economy in Jerusalem or the West Bank or in all of Palestine without a political solution. We don’t have a Palestinian economy; we have economic activities. That’s all we have,” Odeh told IPS.

Israel’s separation barrier alone, according to a new report by the United Nations Conference on Trade and Development (UNCTD), has caused a direct loss of over one billion dollars to Palestinians in Jerusalem, and continues to incur 200 million dollars per year in lost opportunities.

Israel’s severing and control over the Jerusalem-Jericho road – the historical trade route that connected Jerusalem to the rest of the West Bank and Middle East – has also contributed to the city’s economic downturn.

Separation of Jerusalem from West Bank

Before the First Intifada (Arabic for “uprising”) began in the late 1980s, East Jerusalem contributed approximately 14 to 15 percent of the gross domestic product (GDP) in the Occupied Palestinian territories (OPT). By 2000, that number had dropped to less than eight percent; in 2010, the East Jerusalem economy, compared to the rest of the OPT, was estimated at only seven percent.

“Economic separation resulted in the contraction in the relative size of the East Jerusalem economy, its detachment from the remaining OPT and the gradual redirection of East Jerusalem employment towards the Israeli labour market,” the U.N. report found.

Decades ago, Israel adopted a policy to maintain a so-called “demographic balance” in Jerusalem and attempt to limit Palestinian residents of the city to 26.5 percent or less of the total population.

To maintain this composition, Israel built numerous Jewish-Israeli settlements inside and in a ring around Jerusalem and changed the municipal boundaries to encompass Jewish neighbourhoods while excluding Palestinian ones.

It is now estimated that 90,000 Palestinians holding Jerusalem residency rights live on the other side of the separation barrier and must cross through Israeli checkpoints in order to reach Jerusalem for school, medical treatment, work, and other services.

“Israel is using all kinds of tools to push the Palestinians to leave; sometimes they are visible, and sometimes invisible tools,” explained Ziad al-Hammouri, director of the Jerusalem Centre for Social and Economic Rights (JCSER).

Al-Hammouri told IPS that at least 25 percent of the 1,000 Palestinian shops in the Old City were closed in recent years as a result of high municipal taxes and a lack of customers. “Taxation is an invisible tool…as dangerous as revoking ID cards and demolishing houses,” he said. “Israel will use this as pressure and as a tool in the future to confiscate these shops and properties.”

Jerusalem's first light rail starts test runs this spring, with its sleek silver cars gliding across the city and promising to relieve the perpetual congestion.

But Palestinians see no reason to celebrate.

They hope to derail the $1 billion tram because they fear it will further entrench Israeli control over east Jerusalem, the part of the city they want as a capital. They've asked a French court to force two French multinationals, Veolia and Alstom, out of the project and are urging Arab countries to cancel contracts with the two companies.

The 9-mile (14-kilometer) line runs from Jewish west Jerusalem to the largest of several settlements Israel built in the traditionally Arab eastern sector after capturing it in 1967.

Palestinians say Israel is creating more facts on the ground with the tram, just as it has with its ever-expanding Jewish enclaves in east Jerusalem that are now home to 180,000 Israelis.

"The purpose of this project is to make a bridge between the settlements ... and west Jerusalem and they use our land, Palestinian land," said Ahmed Rweidi, an adviser to Palestinian President Mahmoud Abbas. "The train is illegal and the settlements are illegal."

Israeli Prime Minister Benjamin Netanyahu says he's not willing to give up any part of Jerusalem, taking a harder line than some of his predecessors, and insists Israel has the right to build anywhere in the city.

Government spokesman Mark Regev said "the light rail will serve all of Jerusalem's residents and beyond, Arab and Jew alike."

The campaign against the train is part of a wider attempt by Palestinian activists and politicians to use new ways to challenge Israeli rule over the lands they want for a state. Frustrated by the failure of nearly two decades of peace talks, they are increasingly trying to hit Israel where it hurts — the pocket book.

Palestinian security forces have been confiscating goods made in Jewish settlements from West Bank shops. Dozens of Palestinian grassroots groups have been orchestrating a "boycott Israel" campaign since 2005.

Inspired by the anti-apartheid struggle in South Africa, they say they've gained momentum, particularly after the international outcry over Israel's war against Gaza's Hamas rulers last winter.

Israeli officials say the campaign has failed to dent Israel's economy and bristle at comparisons to apartheid-era South Africa. Jewish activists have been pushing back, branding the attempted boycott as anti-Semitic.

The fight over the rail line comes amid an especially bitter deadlock over the fate of Jerusalem.

Netanyahu's refusal to stop settlement construction in east Jerusalem is one of the reasons Abbas won't resume peace talks that broke off more than a year ago.

But stopping the trains will be an uphill battle.

Tracks have already been laid on most of the route, which will have 23 stations and link west Jerusalem with Pisgat Zeev, the largest Jewish settlement in the eastern sector. Forty-four cars are parked at a depot in east Jerusalem, ready for a test phase that is to begin around March and last several months.

The Palestine Liberation Organization has asked a French court to order Veolia and Alstom to drop out of the project, on grounds that it violates the Geneva Convention's prohibition of an occupier changing the nature of occupied lands.

The two firms are members, along with Israeli companies, of the City Pass consortium which is building the rail line and is to operate it until 2036.

The court ruled in December that it has jurisdiction, but has not set a date for the next hearing.

The Abbas government is also urging Saudi Arabia and other Arab countries to cut business ties with the firms. Among other projects in the region, Alstom is involved in building a rail line between the holy cities of Mecca and Medina in Saudi Arabia.

Palestinian officials say they will raise the issue at a March summit of the Arab League.

"This is the least Arabs can do to support our rights in Jerusalem," said Rweidi, the Abbas adviser.

PLO officials said they were unaware of any actions taken by Arab governments. Saudi Arabia has kept silent about the pressure.

Veolia officials in Israel told AP the company is in the process of transferring its 5 percent share in the Jerusalem rail project to Israel's Dan bus company. But they insist it's strictly a business decision. The proposed sale would have to be approved by the consortium, but that may take several years.

Alstom, which is providing the rail cars, defended the project.

Spokesman Philippe Kasse rejected claims that the tram creates a new reality on the ground, noting that buses now service the future train route.

"We are told (by critics) that this tramway is a weapon designed to make irreversible the annexation of east Jerusalem and the colonization policy led by Israel," he wrote in an e-mailed response. "Replacing an existing bus line by a tramway is neither using warfare nor establishing a political fait accompli."

Jerusalem municipality spokesman Stephan Miller defended the rail project as beneficial to both Arabs and Jews. The train will make three stops in the Arab neighborhood of Shuafat. Some residents there expressed hope it will ease chronic congestion, while others complained that the tracks use up two lanes of their four-lane main road.

Hind Khoury, a Palestinian diplomat in France involved in the legal battle against the tram, said the campaign is a measure of Palestinian frustration.

"In the last few years, we were still hoping that the peace process would be credible enough to come to a conclusion," she said. "Now we are taking the legal route."

Gaza's Hamas rulers have suffered back-to-back setbacks with Israel's successful test of a rocket shield and Egypt's push to block smuggling tunnels.

The Iron Dome rocket defense system, reportedly to be deployed near Gaza in May, would deprive Hamas of its main leverage against Israel — the threat of rocket salvos. Egypt's underground anti-tunnel barrier of steel beams, now under construction, could eventually cut Hamas' supply of cash and weapons.

The looming double squeeze is poised to limit Hamas' options and change the rules of engagement on Gaza's volatile, blockaded borders.

However, the Islamic militants remain firmly entrenched in the territory they seized from their Western-backed Fatah rivals in 2007.

Hamas has already struck back against the steel wall by trying to rally public opinion against Egypt and experts warn Hamas could attempt to renew suicide attacks in Israel if rockets are intercepted.

Hamas "can adjust to any new circumstances," said Ahmed Yousef, an official in the group, without giving specifics. He said more pressure on the movement would only make it more popular.

In recent years, Hamas, Israel and Egypt have been locked in a violent impasse.

Since 2006, following the capture of an Israeli soldier by Gaza militants, Israel and Egypt have kept Gaza largely sealed, mainly to contain Hamas. The Islamic militants, in turn, tried to force open the borders by firing crude rockets, often triggering harsh Israeli retaliation.

After Israel unleashed a punishing offensive against Gaza a year ago to stop the daily barrages, rocket and mortar fire ebbed but did not stop. Meanwhile, basic goods, cash and weapons kept coming in through tunnels from Egypt, in addition to limited humanitarian supplies Israel lets through one of its crossings into Gaza.

Israel's Iron Dome and Egypt's steel wall could change the equation, analysts said.

This "weakens the position of Hamas in the strip and confronts them with a challenge, on ... the Egyptian and the Israeli front," said Ephraim Halevy, former chief of Israel's Mossad spy agency. "They will now have to devise a strategy to face up to these new developments."

Israel announced Wednesday that it successfully tested the Iron Dome system, which intercepts short-range missiles of the type fired from Gaza and Lebanon.

Developed at a cost of more than $200 million, it shoots down incoming rockets within seconds of their launch, the Defense Ministry said. The system is so sophisticated that it can almost instantly predict where a rocket will land, changing its calculations to account for wind, sun and other conditions in fractions of a second.

Israeli security officials acknowledge the system is expensive and will probably not be able to stop every rocket. Nonetheless, they say it is an important development in protecting Israelis and will strike an important psychological blow to Hamas.

The first battery is to be deployed in May to shield the town of Sderot near Gaza, the most frequent target of rocket attacks in recent years, according to Israel Channel 10 TV.

Uzi Rubin, a former top Defense Ministry official who was in charge of the long range anti-missile Arrow project, said changes will be profound. "Until now, we were totally exposed to anyone in Gaza who had a rocket to shoot at Israel," he said. "The ability (of Hamas) to cause losses and casualties in Israel will be greatly diminished."

Abu Obeida, spokesman for Hamas' military wing — Izzedine al Qassam — declined comment on Iron Dome.

A Hamas security officer in Gaza City, who is not linked to the military wing, shrugged off Israel's shield, saying it would be very expensive to shoot down every rocket. He refused to be quoted by name, in keeping with Hamas practice.

Ted Postol, an expert on missile defense at the Massachusetts Institute of Technology, said he was not familiar with all the details of Iron Dome, but believed it could help protect small communities from direct hits.

However, he said it was not clear if the system could stop a massive rocket barrage, and the high cost could also be a problem.

A homemade projectile costs less than $200, Hamas said, while intercepting one would cost around $100,000.

Rubin, the former defense ministry official, said the shield is worthwhile anyway, citing the high human and economic cost to communities that live under rocket threat.

Israeli experts say the cost will drop once the system is in mass production.

For now, cross-border friction typical of the recent years still plays itself out.

Early Friday, Israeli aircraft fired missiles at a series of targets, including smuggling tunnels, a Hamas training site and a metal workshop. Hospital doctors say one man was killed.

Earlier, Gaza militants had fired a rocket toward the Israeli city of Ashkelon and at least 10 mortar rounds toward Israel's border, causing no injuries or damages.

Militants said the mortar fire came in retaliation for an Israeli air strike that killed a Gaza gunman and wounded three earlier this week.

Three of the mortars hit the Kerem Shalom crossing, the main conduit for humanitarian goods into Gaza, but caused no damage. In response, Israel closed the crossing, stopping a shipment of food and medicine.

On Wednesday, Hamas loyalists clashed with Egyptian troops over Egypt's border wall. An Egyptian border guard was killed and seven Gazans were wounded in a brief exchange of fire.

Egypt's Foreign Ministry issued a stern warning, saying it would not stand for another violent protest on the border.

Some, meanwhile, have questioned the effectiveness of the steel wall, saying tunnel smugglers could simply dig deeper.

Khaled Hroub, a Hamas expert and lecturer at Cambridge University, said he believes the recent developments will restrict Hamas' military options, but not its control over Gaza.

Demonstrating its position of power, Hamas last week opened its first four-year police academy to mark the anniversary of the Dec. 27, 2008 start of Israel's military offensive against Gaza. On the first day of the war, massive Israeli bombing raids had killed more than 250 Hamas police in their posts.

Hundreds of young Gazans competed for 155 spots in the academy's freshmen class, said Raed Barghout, a spokesman. On Thursday, the young cadets jogged along Gaza's coastal road in black track suits in the morning drill, chanting slogans about liberating the homeland.

"We wanted to tell the world that you can't suppress the government of Gaza," Barghout said.

Engulfed by domestic outrage, Palestinian President Mahmoud Abbas rushed Sunday to limit the fallout from his decision to suspend efforts to have Israeli officials prosecuted for war crimes over last winter's military offensive in Gaza.

The decision set off a wave of condemnation, not just from his Islamic militant Hamas rivals, but also Palestinian human rights groups, intellectuals and commentators. Leading members of the Palestine Liberation Organization and even Abbas' own Fatah movement quickly distanced themselves, saying they had been taken by surprise.

In an attempt to deflect the anger, Abbas announced Sunday he would have a low-level committee look into the decision-making process. It was not clear whether Abbas himself would come under scrutiny.

The U.S. exerted pressure to win a deferral on the war crimes allegations, Israeli and Palestinian officials confirmed, speaking on condition of anonymity because they were not authorized to discuss the content of closed-door meetings. The goal appeared to be to keep the hope of renewed Mideast negotiations alive.

Israeli Prime Minister Benjamin Netanyahu warned last week that pursuing the war crimes charges would deal a deadly blow to efforts to restart peace talks.

At issue is the fate of a U.N. report that accused both Israel and Hamas of committing war crimes during Israel's three week offensive against Gaza's Hamas rulers in December and January. Late last week, the U.N. Human Rights Council considered a resolution to send the report to the U.N. General Assembly for possible action. Instead, Palestinian diplomats said Friday they would agree to delay the vote until March. With the Palestinians out of the picture, Arab and Muslim states did not take the case further.

In going along with the U.S., Abbas signaled that he prefers to protect his strong ties with the Obama administration — and the implied promise of U.S. help in getting the Palestinians a state — even at the cost of losing respect at home.

It was the third domestic setback for Abbas in less than two weeks.

Late last month, the Palestinian leader radiated weakness when he met with Israeli Prime Minister Benjamin Netanyahu at the urging of President Barack Obama. Abbas agreed to the meeting even though he repeatedly said there's nothing to discuss until Israel freezes settlement construction in the West Bank.

With the U.S. pushing for a resumption of peace talks despite Israel's refusal to halt construction, Abbas may soon find himself having to choose between defying Washington and the public humiliation of returning to talks on terms he's often called unacceptable.

Last week, rival Hamas scored a triumph with the release of 20 Palestinian women prisoners by Israel in exchange for a videotaped sign of life from a captured Israeli soldier. It was seen as a step toward a swap of hundreds of Palestinian prisoners for the soldier — a major Israeli concession to Hamas.

In contrast, Abbas has failed to engineer a large-scale prisoner release in nearly five years in office.

With his latest domestic crisis over the U.N. war crimes report, Abbas may have underestimated the extent of the outrage. Many Palestinians viewed the report, written by respected justice Richard Goldstone, as a rare opportunity to hold Israel accountable for what they consider its harsh policies against them.

The report accused Israel of using disproportionate force and targeting civilians in Gaza. It faulted Hamas for firing rockets at Israeli towns. Israel launched its offensive to halt years of Hamas rocket fire.

Nearly 1,400 Palestinians, including hundreds of civilians, were killed in the war, along with 13 Israelis.

Both sides denied committing war crimes.

On Sunday, Hamas, whose forces routed those of Abbas' Fatah movement in a violent takover of Gaza in 2007, lashed out at Abbas for his decision on the U.N. report.

Gaza Prime Minister Ismail Haniyeh of Hamas said the decision was "shameful and irresponsible" and "traffics in the blood of our women and children in Gaza."

But others also sharply criticized Abbas.

Ali Jarbawi, planning minister in Abbas' West Bank government, said he would seek an explanation when the Cabinet meets Monday.

"Someone made a mistake," he said. "There was a wrong decision, and this is terribly bad."

Leading members of the Palestine Liberation Organization said they were taken by surprise and called for an investigation.

In Syria, the Foreign Ministry said in a statement that it was "astonished" by the Palestinian Authority's position which it said foiled international efforts to "take appropriate measures and implement the report's recommendations."

Five Syrian-based radical Palestinian factions called for those responsible for the decision to be put on trial.

Abbas responded Sunday by setting up a low-level committee to look into the chain of decision-making. A member of the panel, former legislator Azmi Shuaibi, said the group would talk to Abbas, the Palestinian ambassador to the U.N. and other officials.

However, it appears unlikely the investigation would target Abbas.

Abbas' aides have defended the decision to defer the vote on the Goldstone report, saying Palestinian diplomats needed more time to win international support for the document. They insisted the report wasn't being shelved.

Israel's previous government built or issued bids for some 9,000 homes for Israelis in Jerusalem and the West Bank, despite its promise to pursue a peace deal with the Palestinians, settlement monitors said Monday, summarizing Ehud Olmert's three years as prime minister.

The Israeli watchdog groups Peace Now and Ir Amim urged President Barack Obama to step in quickly and pressure Israel's new prime minister, Benjamin Netanyahu, to halt further settlement expansion, particularly in the areas of Jerusalem the Palestinians want for their future capital.

"The more time the international community and the Obama administration will require to generate a political process, the more adamant they need to be to save Israel from itself, because we are losing the two-state solution," said Daniel Seidemann of Ir Amim, a group that promotes coexistence in Jerusalem.

Netanyahu supports continued construction in settlements, opposes a division of Jerusalem and has not accepted the notion of a Palestinian state. His positions could lead to growing friction with the international community, though he has said he is reviewing policy.

Palestinian President Mahmoud Abbas insisted Monday that a settlement freeze is a prerequisite for resuming peace talks with Israel. Abbas' year of negotiations with Olmert ended inconclusively.

Abbas also rejected Israeli demands that Palestinians not only recognize the state of Israel — as Abbas and others have — but recognize Israel as a Jewish state.

"Name yourself, it's not my business," he said. "All I know is that there is the state of Israel, in the borders of 1967, not one centimeter more, not one centimeter less. Anything else, I don't accept."

Abbas' comments drew an angry response from Israel. "This is more evidence that the Palestinians are not interested in true peace with Israel," said Ofer Akunis, a lawmaker in Netanyahu's Likud Party.

Since capturing the West Bank and east Jerusalem in the 1967 Mideast War, Israel has built homes for about 470,000 Israelis there, including some 190,000 who moved to east Jerusalem.

From January 2006 to January 2009, roughly the period of the Olmert government, Israel built some 5,100 homes in West Bank settlements and issued bids for another 500 housing units there, said Hagit Ofran of Peace Now. Another 560 structures, including stone houses and mobile homes, were erected in dozens of unauthorized settlement outposts, Ofran said.

In the Palestinian-claimed areas of Jerusalem, the Olmert government issued bids for 2,400 homes for Israelis, she said. About one-third of the city's 750,000 residents are Palestinians.

In the latest project for Israelis, construction has begun on 62 apartments, in three buildings of up to eight stories, in the Palestinian neighborhood of Zawahra in east Jerusalem, Seidemann said Monday.

Jerusalem municipal officials declined to comment.

Palestinians complain that Israeli housing policies are discriminatory, making it difficult for them to obtain building permits.

Also Monday, U.S. consular officials toured the West Bank area just east of Jerusalem, where one of Israel's largest settlements, Maaleh Adumim, is located.

Previous Israeli governments prepared plans for another settlement, known as E-1, across a major highway from Maaleh Adumim. However, the project was blocked by the Bush administration because it would effectively cut off a future Palestinian capital in Jerusalem from the West Bank.