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JERUSALEM (Reuters) - Israeli Prime Minister Benjamin Netanyahu, saying Jews have a right to live anywhere in Jerusalem, defended on Monday a settlement project that drew criticism from U.S. Secretary of State Hillary Clinton.
Israeli bulldozers cleared the way for 20 new homes for Jews in East Jerusalem, an area captured by Israel in a 1967 war and which Palestinian want as the capital of a future state, by demolishing a derelict hotel on Sunday.
Clinton, in Abu Dhabi on a tour of U.S. Gulf Arab allies, called the Israeli action a "disturbing development" and said it "undermines peace efforts to achieve the two-state solution."
A statement issued by Netanyahu's office made no direct reference to Clinton's criticism, but said "there should be no expectation that the State of Israel will impose a ban on Jews purchasing private property in Jerusalem."
The Shepherd Hotel, torn down as part of a project first announced in 2009, was declared "absentee property" by Israel after it captured and annexed East Jerusalem. Israel views all of Jerusalem as its capital, a claim that is not recognized internationally.
The title of the hotel was transferred to an Israeli firm, which sold it in 1985 to Irving Moskowitz, a U.S.-based patron of Jewish settlers.
"Actions undertaken yesterday at the Shepherd Hotel were conducted by private individuals in accordance with Israeli law. The Israeli government was not involved," the statement from Netanyahu's office said.
It added, however, "no democratic government" in the world would prohibit Jews from buying real estate, and "Israel will certainly not do so."
"Just as Arab residents of Jerusalem can buy or rent property in predominantly Jewish neighborhoods in Jerusalem, Jews can buy or rent property in predominantly Arab neighborhoods in Jerusalem," the statement said.
Egypt's Foreign Ministry condemned the demolition and said "the settlement policies of the current government in Israel will only inflame the situation further and stir passions, not just in Palestine, but in the Arab and Islamic worlds."
A U.N. spokesman said Secretary-General Ban Ki-moon "deplores" Israel's action and warned it could stoke tensions.
The settlement project at the hotel compound, whose ownership is contested, stoked Palestinian anger as Washington tries to revive peace talks stalled by a dispute over Israeli settlement construction in the West Bank and East Jerusalem.
Some 190,000 Israelis live in East Jerusalem and adjacent areas of the West Bank that Israel annexed to its Jerusalem municipality. East Jerusalem has 250,000 Palestinian residents.
Writing by Jeffrey Heller, Additional reporting by Andrew Quinn in Abu Dhabi and Cairo bureau; Editing by Samia Nakhoul