An Israeli committee on Wednesday allowed a building project in the heart of Palestinian East Jerusalem to continue after a two-day suspension, despite a petition filed against it, dpa reported.
The petition against the construction of a Jewish apartment complex on the site of the historic Shepherd Hotel in the Arab neighbourhood of Sheikh Jarrah was filed by a non-governmental group which defends the rights of the Muslim minority in Israel.
A Jewish American businessman who bought the Shepherd Hotel in 1985 plans - along with an ultra-right Jewish organization, Ateret Cohanim - to build two apartment buildings.
They are to house some 20 Jewish families on the site of the hotel, built in the 1930s by a prominent Muslim religious leader, Grand Mufti Haj Amin al-Husseini.
In the petition to the appeals committee of Jerusalem municipality's planning branch, the Religious Council for Islamic Affairs in Israel argued that the Jewish apartment complex plan ran counter to international law.
But the committee advised the group to withdraw its complaint.
The building project has sparked international condemnation, which has been bluntly rejected by Israeli Prime Minister Benjamin Netanyahu. His office issued a statement clarifying the project was a private, not a government one and vowing that he would not interfere.
"There should be no expectation that the State of Israel will impose a ban on Jews purchasing private property in Jerusalem. No democratic government would impose such a ban on Jews and Israel will certainly not do so," it insisted.
US Secretary of State Hillary Rodham Clinton said Washington was "very concerned" the planned Jewish apartment complex in East Jerusalem, which the Palestinians want as the capital of their future state.
In a statement, she said the move contradicted "the logic of a reasonable and necessary agreement" between Israel and the Palestinians on the status of Jerusalem, and "undermines peace efforts to achieve the two state-solution."
Israeli contractors 10 days ago demolished part of the historic hotel to make way for the new apartments.