By Maia Ridberg

JERUSALEM (Reuters) - On the day of last month's summit which launched the "road map" plan for Middle East peace, ultra-nationalist Jews hoisted Israeli flags in an Arab neighborhood of East Jerusalem.

Reuters Photo

A Jewish influx into the district shows how Israel has been applying its claim of biblical birthright to the whole city in moves to prevent Palestinians from claiming East Jerusalem as the capital of a state they seek in Israeli-occupied territory.

More than 170,000 Jews have moved into East Jerusalem since Israel seized and annexed the land -- seat of ancient Jewish, Muslim and Christian shrines -- in the 1967 Middle East war.

"Israel's plan has been to put facts on the ground to keep all of Jerusalem under Israeli control," said Moshe Amirav, an adviser on Jerusalem affairs to ex-Prime Minister Ehud Barak (news - web sites).

Palestinians say conflict with Israel will not end without a halt to what they call the "Judaisation" of East Jerusalem, marked by decades of expansion of Jewish settlements and the construction of roads built to bypass and block the development of Arab neighborhoods.

With the two sides so far apart over Jerusalem's future, the new U.S.-backed peace plan has put off the issue to "final status" talks in 2005 when a provisional Palestinian state in the West Bank and Gaza Strip (news - web sites) is supposed to be in place.

Any final deal on Jerusalem will be complicated by the long-standing Jewish influx into East Jerusalem to cement Israel's claim to the city as its eternal, indivisible capital.

Vast suburban developments like Pisgat Ze'ev, French Hill and Gilo are filled with predominantly secular Israelis drawn by state subsidies, good schools and proximity to downtown Jerusalem.

Israel sees them as neighborhoods of Jerusalem but they are viewed abroad as illegal settlements built on conquered land.

RIGHTIST JEWISH INFLUX UNNERVES ARAB RESIDENTS

Dozens of ultra-nationalist Orthodox Jews moving into long established Arab districts have stirred more controversy than the transformation wrought by tens of thousands of secular Jews.

On June 4, the day of the summit, leaders of the far-right Moledet (Homeland) movement, which advocates "transferring" Palestinians to Jordan, raised Star of David flags over the site of a planned office in the Arab neighborhood of Sheikh Jarrah.

Moledet backers carved out an enclave in Sheikh Jarrah in 1998 to take over what they said was a synagogue abandoned under Jordanian rule a half century before -- but which Palestinians say was an Arab villa.

Their settlement, now home to about 100 residents, is a maze of densely packed dwellings surrounded by thousands of Palestinian Arab residents and named after the adjacent tomb of Simon the Just, a biblical-era Jewish priest.

Backed by Moledet leader Benny Elon, who is tourism minister in Prime Minister Ariel Sharon (news - web sites)'s right-wing coalition, the settlers plan housing for an additional 250 Jewish families.

HIGH ARAB BIRTH RATE GUIDES CITY PLANNERS

Israel has been concerned that the current 68 percent Jewish majority in the entire city could gradually succumb to a considerably higher Palestinian birth rate.

A draft Israeli master plan for Jerusalem's next 20 years aims to pre-empt such an outcome by encouraging Jewish growth throughout the city with more affordable housing and services.

Urban planning experts who have studied the plan say it does not provide for enough new housing and schools to accommodate the anticipated rise in the Arab population. "(Palestinians) will be forced to leave the city," said Gershon Baskin, Israeli co-director of a municipal research institute.

For many years, Palestinians have been denied an adequate number of permits to build housing in East Jerusalem. City authorities have demolished Arab homes built without permits.

Left-wing Israeli and Palestinian political figures, lawyers and intellectuals have drafted a "Road Map for Jerusalem."

It calls on Israel to shelve the master plan and allow Jerusalem to serve as an open, dual capital divided into jurisdictions catering equitably to Jewish and Arab residents.

It also stipulates equal access for Jews and Arabs to holy sites, including the al-Aqsa mosque, after which a 33-month-old Palestinian uprising against Israeli occupation is named.

"There can be progress but no end to the conflict without addressing the issue of Jerusalem," said Jonathan Kuttab, a civil-rights lawyer who has defended Palestinians in property disputes with Jewish settlers.

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