Israeli Prime Minister Benjamin Netanyahu has defended the controversial demolition of an East Jerusalem hotel amid growing opposition in Europe and the United States to Israeli construction on land that it occupied during the 1967 Arab-Israeli war.

On Sunday, Israeli bulldozers began demolishing parts of the historic Shepherd Hotel in order to build apartments for Jewish families. There have been worldwide protests to the Israeli move.

But in a defiant statement issued on Monday by the Prime Minister’s office, Mr. Netanyahu said that the demolition was not illegal.

“Actions taken at the Shepherd Hotel were done by private people corresponding with Israeli law," the statement said. "The Israeli government was not involved in the events."

However, earlier rebuking the Israeli government, Hillary Clinton, the Secretary of State of the United States said in a statement that the “initiation” of the demolition of the Shepherd Hotel was a “disturbing development (that) undermines peace efforts to achieve the two state-solution.”

“In particular, this move contradicts the logic of a reasonable and necessary agreement between the parties on the status of Jerusalem,” she added.

On her part the European Union (E.U.) foreign policy chief, Catherine Ashton said bluntly that the Israeli move was illegal.” I strongly condemn this morning's demolition of the Shepherd Hotel and the planned construction of a new illegal settlement," Ms. Ashton said in a statement released on Sunday.

"I reiterate that settlements are illegal under international law, undermine trust between the parties and constitute an obstacle to peace," she added.

Analysts say that Ms. Ashton’s statement underpins a swing in the European popular mood against unilateral Israeli construction activity in East Jerusalem, which Palestinians want to see as the capital of their future independent State. A recent report authored by the Consul Generals of E.U. countries based in Israel has recommended that the grouping should start treating East Jerusalem as the capital of the Palestinian State. The diplomats' report also called for a discussion on the possibility of preventing "violent settlers in East Jerusalem" from being granted entry into E.U. countries, the Israeli daily Haaretz has reported.

In the commercial field, the E.U. diplomats advocate encouraging a boycott of Israeli products originating from East Jerusalem.

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