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.”

A senior Palestinian peace negotiator says the terms of a proposed Israeli deal to restart the peace process, leaked to the press this week, are unacceptable. But he did not rule out a meeting at the United Nations next month between Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas.

In Germany today, Mr. Netanyahu said that no new agreement to stop settlement building has been reached.

The proposed Israeli deal to temporarily freeze settlement expansion in the West Bank, with exceptions made for all of East Jerusalem and what Israel calls the "natural growth" of existing settlements, was reported by the Guardian, a British newspaper, on Tuesday.

In return, the US, Britain, and France would push for tougher economic sanctions on Iran's nuclear program and Arab states would agree to make steps toward normalizing relations with Israeli, both things the Jewish state dearly wants. The broad outlines of the proposal were confirmed for the Monitor by an Arab government official.

But there has been considerable skepticism that President Obama would link the US strategy for dealing with Iran's nuclear ambitions directly to the Arab-Israeli peace process. And notably absent from several days of speculation has been any real comment from the Arab countries whose support would be crucial.

Palestinian peace negotiator Saeb Erakat, a close aid to President Abbas, says that nothing short of a full settlement freeze would be acceptable.

"A comprehensive settlement freeze is critical to ongoing efforts to restore credibility to the peace process, and to creating an environment for meaningful negotiations," he said in a written response to questions from the Monitor. "The terms of a comprehensive settlement freeze are clearly spelled out in the Road Map. They include East Jerusalem and so called 'natural growth.'"

The 2003 "road map" for peace, which Israel agreed to, called for a freeze on settlement growth, which Palestinians see as undermining the feasibility of the future state they hope to establish.

Netanyahu was in Germany Thursday, and in a joint press conference with Chancellor Angela Merkel appeared to pour cold water over recent optimism that a breakthrough was near. "These rumors are baseless, there is no decision or agreement. There is an attempt to narrow the differences. But reports of agreement are simply not true," he said.

Mrs. Merkel, meanwhile, appeared to insist that a full halt to settlement expansion – which has also been the public position of the Obama administration – was a necessary step toward restarting negotiations. "Stopping of the settlement [building] is very important," Merkel said. "Time is of the essence."

Land and settlements

Roughly 500,000 Israelis live in East Jerusalem and West Bank in settlements built since those areas were occupied by Israel in the 1967 war. The growth of those settlements, on what the international community deems to be Palestinian land, is a major deterrent to peace. The Palestinians say their growth has been used to fragment their own population and make the viability of a future state less tenable.

Mr. Erakat didn't rule out a possible meeting between Abbas and Netanyahu on the sidelines of next month's UN General Assembly meeting in New York, though he wouldn't confirm one either. Erakat said only that he "remains hopeful."

Nevertheless, signs continued to grow that the Obama administration is planning a major announcement of renewed talks sometime this fall.

"It's very clear that [the Obama administration] will make some sort of announcement on the resumption of negotiations," said an Arab diplomat in Washington, speaking on condition of anonymity. He expected the announcement to come at the September General Assembly meeting, possibly accompanied by a meeting between Netanyahu and Abbas.

The diplomat said the proposed agreement will also include unspecified steps toward normalization from some Arab countries including Morocco, Qatar, and several smaller Gulf states. He said, as he understands it, that the US is willing to push for harsher action on Iran in exchange for a partial settlement freeze. "What's new about this is the linkage with the Iran sanctions," the diplomat said.

Arab disagreement

If accurate, the proposal would be widely regarded in the Arab world as a significant American concession to Israel at the expense of the Palestinians, analysts and observers here said.

"This will be a fake peace process," says Cairo University political science professor Hassan Nafaa. "What we need is not another process."

Arab leaders such as Egyptian President Hosni Mubarak have pressed Mr. Obama for an accelerated timetable toward final status negotiations, meaning the firm contours of a Palestinian state.

Netanyahu has favored an incremental approach that delays difficult issues, such as the right of return for Palestinian refugees living in countries such as Lebanon, and the status of Jerusalem, which Israel insists is its "eternal capital."

If Obama is in fact acceding to a gradual process, he will essentially be siding with the Israelis from the very start, Professor Nafaa says.

"You're still delaying all the real issues," he says. "This is a wrong start for Obama. He is escaping the whole issue. He wants to be reelected and he is not going to pressure Israel. People here expected him to be much more solid."

Mohammed Kaush, writing in Jordan's al-Arab al-Youm, captured Arab skepticism. "Netanyahu is manoeuvring ... and wants to draw attention to side issues to buy more time and create new facts on the ground. This will extinguish any hope that a state or even autonomy could be created," he argued.

Will Saudi Arabia approve?

It remains an open question whether any Arab governments will agree to partial normalization. Egypt and Jordan already have full diplomatic relations with Israel, leaving little to gain on those fronts, which makes large and wealthy Saudi Arabia potentially crucial to the new venture's credibility.

Khalil el Anani, an analyst with the Al Ahram Center for Political and Strategic Studies in Cairo, describes improved relations with countries such as Qatar and Morocco as irrelevant to Israel's regional goals.

"Saudi Arabia is the real prize," he says. "But I don't think Saudi Arabia can open the subject with their own people about normalization."

Qatar hosted a longstanding Israeli trade mission for years and only severed relations in January over Israel's siege of Gaza. Morocco has long had quietly warm relations with the Jewish state, although never a formal treaty. Then-Israeli Prime Minister Ehud Barak attended the funeral for Morocco's King Hassan II in 1999.

Saudi Arabia strongly opposes any sort of incremental normalization measures and continues to back its 2001 Arab peace initiative, which offered full diplomatic relations with most of the Arab and Islamic world in exchange for a full Israeli withdrawal from all of the West Bank and Gaza.

"Saudi Arabia has made it very clear that they will not change their position … not even a symbolic step," Nafaa says.

Another open question is the role of the Egyptians. With their own Israeli peace deal in hand and warm relations with the US, they have long positioned themselves as indispensable negotiators – as well as diplomatic rivals to the Saudis, who have sought greater regional influence in recent years. Egypt, which is home to the Arab League, could provide political cover for any smaller states that agree to take normalization steps. "Egypt may be asked to lend political support for those Arab states that do take steps toward normalization," the Arab diplomat says.

Nafaa puts it less diplomatically. "Egypt gave up all of its cards. There's nothing for the government to do except pressure the Palestinians," he said.

Reporting from Rafah, Gaza Strip -- The tunnel owners sit around the fire, passing cups of sweet tea and talking bitterly about the siege.

But on this early February morning they're not talking about the Israeli jets and their occasional airstrikes on the hundreds of tunnels that worm their way from Egypt into the Gaza Strip, slipping in supplies and, some say, weapons.

Instead, the Palestinians' fury is directed at the Egyptian government, which in the wake of this winter's Israeli offensive has cracked down on the Gaza tunnel trade, choking the flow of goods.

"No matter what the Israelis do, we're steadfast," one owner, who identifies himself as Abu Ahmed, says as he sits in an outdoor courtyard within sight of the border. "But this? This could slaughter our country and our economy."

Under pressure from the United States and Israel, Egypt is imposing stronger checkpoints throughout the Sinai peninsula to prevent merchandise from reaching the tunnel zone. Here on the border in Rafah, there's talk of police using informants to find hidden entrances and destroy dozens of tunnels with explosives or huge water hoses.

"They seem to be taking it seriously this time," says Musab Shurrab, a police officer stationed within yards of the border wall.

An army of tunnel diggers went back to work immediately after Israel ended its three-week offensive in Gaza on Jan. 18. They vowed to repair damaged routes and continue subverting Israeli and Egyptian control over the Palestinian territory's borders.

Tunnel traffic resumed for about a week, with a new wave of goods appearing in Gaza's depleted markets.

Then, the owners say, something changed.

Having fended off calls for an international troop presence on the border, Egyptian President Hosni Mubarak apparently set out to prove that Egypt was capable of controlling its own borders.

In the last week of January, extra security forces began appearing on the Egyptian side of the wall, along with shiny new security cameras pointed across the border. Now the heads of several Egyptian soldiers are visible on the roof of a deserted three-story apartment building just across the border. The low rooftop wall has been raised and fortified with layers of cinder block.

"It's the first time they've acted like this," Shurrab says.

But even more disturbing, he says, is when the soldiers suddenly disappear. Everybody panics, fearing that the Egyptians have been warned about an impending Israeli airstrike.

There are signs that the Egyptians are succeeding -- for now, at least -- where the Israeli air force failed.

Abu Khalil is part owner of a tunnel specializing in transporting gasoline. He boasts that his tunnel never stopped working during the Israeli siege, bringing in as much as 21,000 gallons a day.

But now, Abu Khalil says, he is facing a "new Pharaonic siege."

"Since 9 p.m. last night, not a drop has come through," he says.

A few crews are working their tunnels amid the familiar growl of generators. Most say they are repairing damage. But the activity is a fraction of what it was two weeks earlier.

There also is a new atmosphere of caution. In the first days after the cease-fire, tunnel operators proudly welcomed journalists and TV crews to show off their underground creations. They are more subdued now, speaking freely but avoiding all picture taking. A Hamas police officer warns against photographing any goods coming out of the tunnels.

Gaza's tunnel industry boom started in 2007 when Hamas routed the rival Fatah faction and took full control of the territory. Israel and Egypt strongly tightened their existing restrictions on Gaza's borders.

Hamas essentially licensed the tunnels, declaring them a legitimate part of the economy and taxing the profits.

Egyptian authorities often turned a blind eye, viewing the tunnels as a safety valve that prevented living conditions in Gaza from becoming too desperate.

But Israel has made ending the tunnel trade a priority, accusing Hamas of using it to bring in long-range rockets from Iran. The tunnel owners deny that they smuggle weapons, saying rockets pass through secret Hamas-run tunnels that are deeper and more fortified and extend much farther across the border.

"Think about it. The weapons tunnels aren't these guys out in the open here," an owner named Abu Baraa says, pointing to the diggers around him. "I bring through potato chips, Cadbury bars and Pampers."

Abu Baraa, a former day laborer in Israel, says he and several partners invested a total of $100,000 to open their tunnel just weeks before the Israeli offensive began. Most of the tunnel owners were forced into the trade by the sanctions-induced collapse of the Gazan economy, he says.

"If there was another way to make a living, I'd do it. It becomes a choice between life or death."

Abu Baraa and other owners say they hope the current crackdown is just a temporary show by the Egyptians to satisfy international demands. They angrily warn that a serious long-term anti-tunnel effort would be a betrayal by Mubarak's government and risk a dangerous backlash.

"The Egyptian people are our brothers," Abu Baraa says. "The government is a collaborator."

Uniformed police officers returned to the streets of Gaza on Monday with machine guns in tow as Hamas sought to reassert control over the battered coastal enclave, declaring that Israel’s 22-day air and land assault had done nothing to weaken the militant group’s authority here.

“Hamas emerged from this battle with its head held high,” said Hamad Ruqb, a Hamas official in Khan Yunis, in the southern Gaza Strip. “Every Israeli attack only increases our support.”

As Israeli tanks and soldiers continued their withdrawal, residents began to assess the damage. In addition to a death toll estimated at more than 1,300, the Palestinian Central Bureau of Statistics estimated infrastructure and economic losses at almost $2 billion. The bureau estimated that 14 percent of all buildings in Gaza were destroyed.

From Kuwait, the Saudi Arabian monarchy vowed to spend $1 billion to help rebuild Gaza, but warned Israel that a long-standing Arab peace offer was imperiled.

“Israel must realize that the choice between peace and war will not always be open to it,” King Abdullah said at an Arab League economic forum, according to the Persian Gulf state’s official Kuwait News Agency. “The Arab peace initiative will not always remain on the table.”

In 2002, Saudi Arabia offered a peace package promising normalized diplomatic and economic relations with Israel in exchange for the establishment of a Palestinian state in the West Bank and Gaza along the borders that existed before 1967.

As Gaza residents emerged from the rubble and buried their dead Monday, a representative of the military wing of Hamas said only 48 of its thousands of fighters were killed. Israel says 400 died.

Israeli Foreign Minister Tzipi Livni warned Hamas against firing rockets. “If Hamas fires one Kassam to the south or anywhere else in Israel, it will be struck again, and Hamas knows it,” she said on Israeli radio.

The fragile unilateral cease-fires held Monday.

Israeli officials maintain that many Palestinians blame Hamas for the deaths and injuries during the Israeli assault. The militant group had refused to renew a shaky six-month truce with Israel that expired Dec. 19 and then resumed launching dozens of rockets a day at southern Israeli cities.

Some Gazans expressed similar sentiments.

The residents of East and West Jerusalem have lived side by side, if not together, for 40 years, ever since Israel seized the Arab side of the city from Jordan during the 1967 Middle East War.

The union has rarely been a happy one. But recent incidents have residents on both sides viewing each other with renewed suspicion and anxiety.

"There is no relationship" between mostly Arab East Jerusalem and the predominantly Jewish western neighborhoods, said Khalil Tafakji, a Palestinian geographer and map specialist. East Jerusalem's Arab residents "go to the west to work and then return home and that's it," he said.

Last week, a Palestinian resident of East Jerusalem driving an earthmover killed three people and wounded dozens in a rampage downtown. In March, an Arab from East Jerusalem killed eight young students in a yeshiva.

The two incidents have revived public demands for action, and Israeli politicians appear ready to answer that call.

Defense Minister Ehud Barak ordered the destruction of the homes of both attackers -- a punishment once frequently meted out in the West Bank and the Gaza Strip but rarely used in East Jerusalem. The attorney general's office has given the green light, but the demolitions may not take place for several weeks.

In the meantime, Israelis, who feel safer thanks to a massive concrete barrier sealing off their nation from much of the West Bank, are openly debating what many believe is a renewed threat from within.

An editorial in the Jerusalem Post last week fretted about "a trend toward radicalization" among East Jerusalem's estimated 200,000 Arabs.

"They may work for Jews; they may receive health and social benefits from the Zionist state, but culturally and politically they are inseparable from the surrounding Arab milieu," the editorial stated. "They watch the same satellite TV and hear preachers espousing the same radical messages as their compatriots in the West Bank and Gaza."

Tafakji denied that Arabs in Jerusalem represent a threat, but acknowledged that anger and alienation have been building in recent years.

Cultural and social differences separate East Jerusalem residents from other Arabs who were absorbed into Israel with varying degrees of success when the state was created in 1948. Arab Israelis often speak Hebrew and can vote and run for office in the Jewish state.

The construction of the barrier has literally cut off East Jerusalem's natural social and emotional connections with the West Bank. The growth of Israeli settlements around Jerusalem has fueled fears among Arab residents that they are being encircled and will never be allowed to join an eventual West Bank-based Palestinian state.

"We're not Jordanians, not Palestinians and not Israelis," Tafakjisaid. "The frustration has been there for a long time."

East Jerusalem's Arabs have existed in a legal no man's land since 1967, when Israel annexed the area after the war. They were offered the chance to assume Israeli citizenship, but the vast majority refused. Instead they carry residency cards, which entitle them to move freely and receive social benefits, but they hold Jordanian passports and can vote only in municipal elections.

"The land was fully annexed in 1967, but the people on the land were only partially annexed," said Menachem Klein, a political science professor at Bar-Ilan University near Tel Aviv. "They became residents, but not citizens."

Many East Jerusalem residents work on the predominantly Jewish west side. Relations between the two communities warmed in the late 1990s amid the optimism of the Oslo peace process. But the start of the second Palestinian intifada, or uprising, in 2000 hardened feelings on both sides.

In recent years, Klein said, Israel has helped create a political vacuum in East Jerusalem by hindering Palestinian Authority activity and suppressing the development of homegrown political leadership.

"It's very clear that Israel doesn't want any Palestinian leadership to emerge and is working to keep the Arab community in Jerusalem divided, weak and unable to resist," Klein said.

But the strategy may have backfired. In Palestinian parliamentary elections in 2006, the militant group Hamas dominated the East Jerusalem vote, rather than the more moderate Fatah leadership of the Palestinian Authority.

After the yeshiva killings in March, police prevented right-wing Israeli protesters from attacking the home of the shooter, Alaa abu Dheim. Last week, those close to Hussam Duwayaat, the earthmover driver, took pains to distance his actions from the community at large. A lawyer representing the family described Duwayaat as a mentally unstable drug addict with a criminal history.

The effort to depict the 30-year-old father of two as a lone, apolitical maniac could partly be an attempt to head off demolition of the family's home.

Although it remains to be seen whether Defense Minister Barak intends to carry out the order, the prospect inspires debate about Israel's relationship with East Jerusalem residents.

"In West Jerusalem, the state does not customarily destroy the homes of the families of murderers," columnist Uzi Benziman wrote in the daily newspaper Haaretz. "It is impossible to claim sovereignty over East Jerusalem while applying a special set of laws to its inhabitants."