* Evictions another sign of Israeli defiance of U.S.
* U.N. envoy, Palestinian negotiator condemn Israeli move
* East Jerusalem neighbourhood focus of settler drive
By Jeffrey Heller
JERUSALEM, Aug 2 Israeli police evicted two Palestinian families on Sunday from homes in Arab East Jerusalem and Jews moved in, despite pressure from Israel's main ally, the United States, to freeze settlements.
Police said they were acting on eviction orders issued by an Israeli court, which upheld a settler organisation's land ownership claim based on 19th-century documents.
In legal proceedings stretching back to the 1980s, Palestinians have disputed the claim in the Sheikh Jarrah neighbourhood that has become a focal point of settler development plans in East Jerusalem.
"We are thrown out and they let settlers inside our house. God is with us," a Palestinian resident screamed at police as Jewish families entered the dwellings.
Police clad in black uniforms and carrying assault rifles cordoned off the area while the Palestinians' belongings were packed into removal vans.
Israel took the step in the midst of a dispute with the United States over President Barack Obama's demand to halt Jewish settlement expansion in the occupied West Bank and East Jerusalem, territory captured in a 1967 war.
Robert Serry, the U.N. special coordinator for the Middle East peace process, called the evictions "totally unacceptable", noting that international mediators recently appealed to Israel to stop "provocative actions" in East Jerusalem.
Prime Minister Benjamin Netanyahu, asserting a biblical claim to Jerusalem, has said Jews have a right to live anywhere in the city. Palestinians want East Jerusalem to be the capital of a state they hope to create in the West Bank and Gaza Strip.
Israel annexed East Jerusalem after the 1967 conflict, in a move that was not recognised internationally. Some 200,000 Jews live in East Jerusalem, alongside about 250,000 Palestinians.
The evicted families are descendants of refugees who came to the area in 1956, according to the Israeli organisation Ir Amim, which monitors and opposes Jewish settlement in East Jerusalem.
Settlers have already moved into six other buildings in Sheikh Jarrah, home to consulates and trendy restaurants. Armed men guard the stone houses where settlers have hoisted Israeli flags to assert Jewish dominance.
Palestinian chief negotiator Saeb Erekat, commenting on the evictions, said Israel was demonstrating its "utter failure" to respect international law.
"Israel, the occupying power, once again has shown its commitment to the settler organisations by evicting more than 50 Palestinians, many of them children, from the houses where they have lived for more than 50 years," he said.
Two weeks ago, the U.S. State Department summoned Israel's ambassador in Washington, Michael Oren, and told him plans to build another 20 homes for Jews in East Jerusalem should be suspended.
Netanyahu said, after Oren heard the U.S. demand, that Israel would take not orders over where Jews could live in the city. Talks last week between Netanyahu and Obama's Middle East envoy, George Mitchell, on the settlement dispute ended inconclusively. (Editing by Robin Pomeroy)