Moving into East Jerusalem

"There was a perception of governments, both Likud and Labor, that the Europeans automatically come down on the other side," says Israeli Foreign Ministry Spokesman Mark Regev, who notes that Israeli officials have not received any such report from the EU, but have only read about it in the media.

"The Europeans were very involved in the Gaza [border crossings] agreement," Mr. Regev adds, explaining that they've been able to play more of a role because "they've been more balanced."

Israeli government officials are also quick to point out that East Jerusalem, formally annexed by Israel in 1980, is by Israeli law part of the nation's capital. But that annexation was not recognized by most of the international community - the US included. During her trip here last month, US Secretary of State Condoleezza Rice said the Bush administration had "been very clear that there should be no activities that prejudge a final status agreement."

The Israeli Committee Against House Demolitions (ICAHD), a group of peace activists, argues that the current growth in East Jerusalem does just that.

"A viable Palestinian state has to include [East] Jerusalem," says Jeff Halper, an anthropologist and ICAHD's coordinator. "Up to 40 percent of the Palestinian economy is dependent on it. If you cut Jerusalem out - and that's what plans like E1 are doing - you're cutting the economic heart out of any Palestinian state.

"I would read this document as a panic document," he adds. "These [settlements] are ... ending any possibility of a two-state option, and unless we act very quickly, we will beyond the point of changing it."

Some here would argue that the lessons of Israel's disengagement plan - which pulled some 8,000 Jewish settlers out of Gaza after a 38-year Israeli occupation - demonstrated that even "facts on the ground" are not necessarily irreversible. Still, given Jewish religious ties to Jerusalem and broad political support for keeping Jerusalem as Israel's undivided capital, moving Israelis out of East Jerusalem would be a far trickier task than moving them out of Gaza.

In the hilltop compound of Shimon Hatzadik, most people distrust the media. "I'm not interested in being interviewed," says a young mother hurrying past with a child in tow. Just around the corner, the shuttered Shepherd's Hotel is guarded by a few Palestinians who say they work for Irwin Moskowitz, an American businessman who has purchased several properties in East Jerusalem so that Jews could move into Arab neighborhoods.

More than a dozen small Jewish enclaves exist, or are under construction, inside or next to Arab neighborhoods in East Jerusalem, according to various left-wing Israeli groups which oppose - and therefore track - all attempts of Jewish groups to move into such neighborhoods.

"What should I do?" says the head guard, who would only give his first name, Youssef. "I didn't have other work and I have to feed my family."

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