If there is ever to be Middle East peace, here’s a knot that must somehow be undone.

Hundreds of thousands of Israelis who have moved to sprawling Jewish areas in east Jerusalem believe they are ordinary residents of their capital who will never be asked to vacate their homes. It’s a sentiment shared by most of their countrymen and affirmed by lawmakers who voted this week to limit a government’s ability to ever pull out.

But it’s a lonely position- no other government recognizes Israel’s 43—year—old annexation of east Jerusalem, and the Palestinians are increasingly vocal about insisting that what Israelis universally call “neighborhoods” are in fact illegal “settlements.”

Eight years ago, Herzl Yechezkel, an Israeli lawyer, was one of the first residents to move into the new Har Homa neighborhood, built on land Israel captured in 1967.

“Our neighborhood is inside the Jerusalem municipal area, and it’s legitimate to build in Jerusalem, the capital of the Jewish people,” he said on Tuesday, a day after the Knesset voted to require a special majority or a referendum before any pullout in east Jerusalem. “The Americans see Washington as their capital. Jerusalem is the same.”

Few outside Israel see it that way, though the issue of Israeli construction in east Jerusalem long took a back seat to the controversy over the more populous settlements in the West Bank and to the more explosive dispute over the walled Old City with its holy sites and echoes of biblical history.

But it is now taking centre stage amid efforts to restart peace talks. The U.S. is pressing Israel to freeze settlement construction in the West Bank to draw the Palestinians back to the negotiating table. Israel wants written assurances that east Jerusalem will be exempt, while Palestinians, who see it as their future capital, insist it be included.

In Monday’s Knesset vote, lawmakers passed a measure requiring any future pullout from Israeli territory, including east Jerusalem, be approved by a two—thirds majority. If that fails, the matter would then go to a national referendum, where it would likely face an uphill battle.

While most Israelis recognize that Israel will have to withdraw from much of the West Bank and uproot at least some settlements, the Jewish areas of east Jerusalem are seen as part of the capital. Most residents were drawn by affordable prices and quality of life, rather than ideology, and many seem hardly to be aware that the areas are in dispute.

In past peace talks, Palestinians quietly acknowledged these neighbourhoods would remain part of Israel under a final accord. The Oslo peace process of the 1990s went ahead while Israel built freely in east Jerusalem.

But the east Jerusalem neighbourhoods have become increasingly contentious since the Obama administration put a spotlight on settlement construction and called for a full halt after taking office.

Palestinians have since demanded the freeze as a condition for talks, a position that lies at the heart of the current impasse.

Since the 1967 war, Israel has built a dozen Jewish neighbourhoods in east Jerusalem, a semicircle of sorts ringing the Old City and filling in gaps between Arab areas.

Distant from the ancient holy sites at the city’s heart, they are mundane urban neighbourhoods of apartment buildings faced with beige stone, dotted with small shopping plazas. They are now home to 200,000 people, more than a quarter of Jerusalem’s population.

Another 250,000 Arabs live in east Jerusalem, and 300,000 Jews live in the city’s western sector.

Har Homa, in southern Jerusalem, is a good example of how integrated these areas have become. When the Israeli daily Yediot Ahronot ranked the hottest neighbourhoods in the country earlier this month, Har Homa, where housing prices have doubled in eight years came in third. The paper made no mention of political complications.

On Tuesday, bulldozers started clearing land for 1,000 new housing units to expand Har Homa’s population by a quarter. What might not have drawn much attention several years ago, however, drew reprimands this month from the U.S., the Palestinians and other countries.

While the Palestinians always viewed Israel’s Jerusalem project “with great concern,” said Khalil Shikaki, a Palestinian pollster and analyst, only recently did they come to top the agenda of the political elite. The change, he said, is connected to a generational shift to a younger leadership more sensitive to the threat posed by settlements to a future Palestinian state.

“The issue of insisting that Jerusalem settlements must be included in any freeze is something that has developed over time,” Mr. Shikaki said. “A new leadership has emerged. The old guard is no longer in the driver’s seat.”

Palestinian officials have begun to lobby journalists to stop using the term “neighbourhoods” when describing east Jerusalem.

“Israel’s attempt to deceive the international consensus, and to redraw that consensus, has not been successful,” said Husam Zomlot, a Palestinian spokesman. “These are not neighbourhoods. They are illegal colonies, extraterritorial entities on occupied territory.”

If Israel has lost international understanding where the east Jerusalem neighbourhoods are concerned, it has itself at least partly to blame, said Yitzhak Reiter, an Israeli expert on Jerusalem at the Ashkelon Academic College.

For decades, Jews in east Jerusalem lived only in Jewish neighbourhoods, largely avoiding daily friction with Arab residents. But in the last decade, several thousand ideological Jewish settlers have moved into the heart of Arab neighbourhoods, where they live in isolated enclaves under heavy guard.

“In these places there is tension and violence that move the conflict back 40 years,” Mr. Reiter said. “This is helping to end the quiet acceptance of the new reality Israel created in the older Jewish neighbourhoods.”

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