Bulldozers have demolished a hotel in east Jerusalem to make way for a new Israeli settlement, the latest in a wave of new buildings globally seen as an obstacle to the now stalled peace process.

The Shepherd Hotel was razed by three Israeli bulldozers, early on Sunday, as part of a plan to build a new settlement of 20 units in the heart of the occupied city.

The hotel is located on the demarcation line between two Arab neighbourhoods of Sheikh Jarrah and Wadi al-Joz. The site will not only divide the two neighbourhoods but it will also change the aspects of occupied Jerusalem.

According to official documents, the hotel was owned by al-Quds Mufti, Haj Amin al-Hussaini, who was deported by the British rule in 1937. He later died in Lebanon in 1974.

The Israeli government has granted permission to begin work on the settlement, despite Washington’s opposition to it.

Reporting from west Jerusalem, Al Jazeera’s correspondent Hoda Abdel-Hamid said that, “This has been a very big problem here."

"Palestinians (are) pointing at this specific demolition as a perfect example of the unilateral steps taken by Israel to change the landscape and the ethnic balance of occupied east Jerusalem, which Palestinians consider the capital of their future state.”

The Shepherd Hotel project is funded by Irving Moskowitz, a Jewish-American millionaire and a longtime patron of Jewish settlers.

‘No Negotiations’

It has drawn condemnation by Palestinians. They say that the historical hotel is owned by them and it was taken over by Israel occupation forces after 1967 and sold to Jewish-American millionaire.

Saeb Erekat, Palestinian negotiator has said that Palestinians would not negotiate with Israel as long as such moves continued.

"As long as this government continues with settlement and acts like [it did with] the demolition of the Shepherd Hotel there will not be negotiations"

There has been no progress in peace talks as Palestinians refuse to negotiate without an Israeli settlement freeze that includes east Jerusalem, which the Palestinians want as their future capital.

“The justification given by the Israeli authorities, is that a Jewish person is allowed to live wherever he or she wants to in Jerusalem and no one should be able to stop that,” our correspondent said.

“President Obama has tried very hard to stop that specific plan to demolish the Shepherd hotel,” she added.

Israel’s plans to demolish the hotel created a diplomatic dispute with the US in 2009.

The step is likely to spark protests by Palestinians as well as cause a negative affect on the peace talks between the Palestinians and Israel.

But there have been no reports of violence after the demolition in Sheikh Jarrah.

In this neighbourhood, evacuation of Palestinian families from homes that Israeli courts have ruled were owned in the past by Jews or purchased from Arabs, has led to anti-settler protests.

The hotel was declared "absentee property" by Israel after it captured and annexed East Jerusalem.

Some 190,000 Israelis live in East Jerusalem and adjacent areas of the West Bank that Israel annexed to its Jerusalem municipality after the 1967 conflict.

East Jerusalem has 250,000 Palestinian residents.
 
(Al Jazeera and Agencies)