Israel Admits Funding Old City Settlement

A HEATED controversy over Jewish settlement in the Christian Quarter of Jersualem's Old City got hotter this week when a Ministry of Housing statement revealed that $1.8 million in Israeli government funds helped Jewish families lease a Greek Orthodox Church building inside the holy city. About 150 settlers moved into the 72-room building near the Church of the Holy Sepulcher on April 11, angering Greek Orthodox Church officials, Palestinians, and others, who charge that the Jews were encroaching on Christian territory.

Arab-Jewish tensions have increased significantly in the Old City, and Palestinians have scuffled with police outside the building known to Christians as St. John's Hospice.

At the same time, the Greek Orthodox Church charges that the building was illegally sublet - and is seeking the settlers' eviction. City officials had hoped to limit the controversy until a court decides whether to uphold an eviction order. But Sunday, the Israeli Ministry of Housing announced that $1.8 million in state funds was funneled to the settlers through a subsidiary of the Jewish National Fund, an organization founded before Israeli independence to help Zionists purchase land in Palestine.

The purchase was made as part of a years-old state policy of buying properties in Israel owned by foreigners, ``including church properties,'' the statement said. But the revelation fuels complaints that hawks in the ruling Likud Party are taking advantage of government chaos to fund controversial projects.

Left-wing parliamentarian Yossi Sarid, whose inquiry forced the ministry statement, called the expenditure ``political provocation'' and urged that the government take back the funds.

Abroad, the revelation is particularly embarrassing as Israel is seeking additional aid from Washington to help build housing for a massive influx of Soviet Jews. United States law prohibits Israel from spending US funds in territories seized by Israel in the 1967 Six Day War, including in the walled Old City.

Egypt charged that Israel's settlement policy ``complicated any effort to a peace settlement'' with the Arabs. Jerusalem's mayor, Teddy Kollek, has also criticized the settlers' move into the Christian Quarter. Mr. Kollek says that in principle, people of all faiths should be allowed to live anywhere in the holy city. But the veteran Jewish mayor says that an understanding exists that the walled Old City has been roughly divided into Jewish, Christian, Muslim, and Armenian quarters since it was seized by the Israelis.

He pointed to the case of an Arab family that was thwarted in its bid to buy property in the Jewish Quarter, appealed to the Supreme Court and lost. Kollek made a similar criticism in December 1987, when former Defense Minister Ariel Sharon purchased an apartment in the Old City's Muslim Quarter. Mr. Sharon still owns the apartment.