The payment was withheld by Israeli officials who said they wanted assurances the money wouldn't be used for suicide bombings.

Cabinet Minister Zeev Boim said the money, used to pay tens of thousands of workers, is being transferred by Israel because Hamas is not yet part of the government.

Hamas officials said on Saturday after a meeting with Palestinian leader Mahmoud Abbas that they will form a new government in the coming weeks after the newly elected parliament is sworn in on Feb. 16.

The U.S., Europe, Russia, Jordan and Egypt have refused to deal with Hamas unless the group renounces its charter calling for Israel's destruction and disbands its militant wing.

The U.S. and European Union have also said they will stop aid to the Palestinians unless Hamas renounces violence.

Said Rhateb was born in 1972, five years after Israeli soldiers fought their way through East Jerusalem and claimed his family's dry, rock-strewn plot as part of what the Jewish state proclaimed its "eternal and indivisible capital". The bureaucrats followed in the army's footsteps, registering and measuring Israel's largest annexation of territory since its victory over the Arab armies in the 1948 war of independence. They cast an eye over the Rhateb family's village of Beit Hanina and its lands, a short drive from the biblical city on the hill, and decided the outer limits of this new Jerusalem. The Israelis drew a line on a map - a new city boundary - between Beit Hanina's lands and most of its homes. The olive groves and orchards were to be part of Jerusalem; the village was to remain in the West Bank.

The population was not so neatly divided. Arabs in the area were registered as living in the village - even those, like Rhateb's parents, whose homes were inside what was now defined as Jerusalem. In time, the Israelis gave the Rhatebs identity cards that classified them as residents of the West Bank, under military occupation. When Said Rhateb was born, he too was listed as living outside the city's boundaries. His parents thought little of it as they moved freely across the invisible line drawn by the Israelis, shopping and praying inside the walls of Jerusalem's Old City.

Four decades later, the increasingly complex world of Israel's system of classification deems Said Rhateb to be a resident of the West Bank - somewhere he has never lived - and an illegal alien for living in the home in which he was born, inside the Jerusalem boundary. Jerusalem's council forces Rhateb to pay substantial property taxes on his house but that does not give him the right to live in it, and he is periodically arrested for doing so. Rhateb's children have been thrown out of their Jerusalem school, he cannot register a car in his name - or rather he can, but only one with Palestinian number plates, which means he cannot drive it to his home because only Israeli-registered cars are allowed within Jerusalem - and he needs a pass to visit the centre of the city. The army grants him about four a year.

There is more. If Rhateb is not legally resident in his own home, then he is defined as an "absentee" who has abandoned his property. Under Israeli law, it now belongs to the state or, more particularly, its Jewish citizens. "They sent papers that said we cannot sell the land or develop it because we do not own the land. It belongs to the state," he says. "Any time they want to confiscate it, they can, because they say we are absentees even though we are living in the house. That's what forced my older brother and three sisters to live in the US. They couldn't bear the harassment."

The 'apartheid wall'
There are few places in the world where governments construct a web of nationality and residency laws designed for use by one section of the population against another. Apartheid South Africa was one. So is Israel.

Comparisons between white rule in South Africa and Israel's system of control over the Arab peoples it governs are increasingly heard. Opponents of the vast steel and concrete barrier under construction through the West Bank and Jerusalem dubbed it the "apartheid wall" because it forces communities apart and grabs land. Critics of Ariel Sharon's plan to carve up the West Bank, apportioning blobs of territory to the Palestinians, draw comparisons with South Africa's "bantustans" - the nominally independent homelands into which millions of black men and women were herded.

An Israeli human rights organisation has described segregation of West Bank roads by the military as apartheid. Arab Israeli lawyers argue anti-discrimination cases before the supreme court by drawing out similarities between some Israeli legislation and white South Africa's oppressive laws. Desmond Tutu, the former archbishop of Cape Town and chairman of South Africa's truth and reconciliation commission, visited the occupied territories three years ago and described what he found as "much like what happened to us black people in South Africa".

As far back as 1961, Hendrik Verwoerd, the South African prime minister and architect of the "grand apartheid" vision of the bantustans, saw a parallel. "The Jews took Israel from the Arabs after the Arabs had lived there for a thousand years. Israel, like South Africa, is an apartheid state," he said. It is a view that horrifies and infuriates many Israelis.

A prominent Israeli political scientist, Gerald Steinberg, responded to an invitation to appear on a panel at a Jerusalem cultural centre to debate "Is Israel the new apartheid?" by denouncing the organiser, a South African-born Jew, for even posing the question.

"As you are undoubtedly aware, the pro-Palestinian and anti-semitic campaign to demonise Israel focuses on the entirely false and abusive analogy with South Africa. Using the term 'apartheid' to apply to Israel's legitimate responses to terror and the threat of annihilation both demeans the South African experience, and is the most immoral of charges against the right of the Jewish people to self-determination," he replied.

Many Israelis recoil at the suggestion of a parallel because it stabs at the heart of how they see themselves and their country, founded after centuries of hatred, pogroms and ultimately genocide. If anything, many of Israel's Jews view themselves as having more in common with South Africa's black population than with its oppressors. Some staunch defenders of Israel's policies past and present say that even to discuss Israel in the context of apartheid is one step short of comparing the Jewish state to Nazi Germany, not least because of the Afrikaner leadership's fascist sympathies in the 1940s and the disturbing echoes of Hitler's Nuremberg laws in South Africa's racist legislation.

Yet the taboo is increasingly challenged. As Israel's justice minister, Tommy Lapid, said, Israel's defiance of international law in constructing the West Bank barrier could result in it being treated as a pariah like South Africa. Malaysia's prime minister, Abdullah Ahmad Badawi, has called for a campaign against Israel of the kind used to pressure South Africa.

"Like the struggle against apartheid, the struggle of the Palestinian people against Israeli occupation of their country enjoys enormous support from the global community," he said. "Therefore a more concrete expression of this support by global societies to this campaign is timely and fitting."

Anglican, Presbyterian and other churches have backed sanctions against Israel. Last year, one of the UK's university teaching unions endorsed a boycott of two Israeli universities, before reversing its decision amid a torrent of criticism over the reasoning behind the move.

The Israeli government has condemned boycotts as anti-semitism and an attempt to "delegitimise" the Jewish state. It asks why only Israel, a democratic country, is singled out for sanctions. A few protests are not a bandwagon, but underpinning Israeli hostility is a fear, expressed in a secret Israeli foreign ministry report, that Israel's standing abroad could sink so low in the coming years that it might find itself on a collision course with Europe which could see Israel as isolated as the apartheid regime and with serious economic consequences.

Ariel Sharon's withdrawal of Jewish settlers from the Gaza strip last year, and the relinquishing of direct Israeli control over that territory, temporarily dampened some of the criticism. But even as the Gaza pullout was under way, Israel was entrenching its control of those parts of the West Bank it wants to retain, using the barrier to mark out an intended future border that would carve up the territory, and expanding Jewish settlements it intends to annex - a strategy that, if carried through by Sharon's successors, is likely to strengthen the comparisons with apartheid and fuel calls for sanctions.

Israelis are genuinely bewildered that anyone might see similarities between their society and the old South Africa. Where, they ask, are the signs directing "Jews" and "non-Jews" to match the "petty apartheid" of segregated buses, toilets and just about every other facility in Pretoria and Johannesburg.

There are conspicuous differences, of course. Arab Israelis have the vote, although they were prevented from forming their own political parties until the 1980s. They are mostly equal under the law and these days the Israeli courts generally protect their rights. Jews are a majority in Israel; white South Africans were a minority. And Israel spent the first decades of its existence fighting for its life.

But for some of those with a foot in both societies, the distinctions are blurred by other realities. Some Jewish South Africans and Israelis who lived with apartheid - including politicians, Holocaust survivors and men once condemned as terrorists - describe aspects of modern Israel as disturbingly reminiscent of the old South Africa. Some see the parallels in a matrix of discriminatory practices and controls, and what they describe as naked greed for land seized by the fledgling Israeli state from fleeing Arabs and later from the Palestinians for the ever expanding West Bank settlements. "Apartheid was an extension of the colonial project to dispossess people of their land," said the Jewish South African cabinet minister and former ANC guerrilla, Ronnie Kasrils, on a visit to Jerusalem. "That is exactly what has happened in Israel and the occupied territories; the use of force and the law to take the land. That is what apartheid and Israel have in common."

Others see the common ground in the scale of the suffering if not its causes. "If we take the magnitude of the injustice done to the Palestinians by the state of Israel, there is a basis for comparison with apartheid," said the former Israeli ambassador to South Africa, Alon Liel. "If we take the magnitude of suffering, we are in the same league. Of course apartheid was a very different philosophy from what we do, most of which stems from security considerations. But from the point of view of outcome, we are in the same league."

Perhaps the real question is how Israel came to be in the same league as apartheid South Africa, whether by mirroring laws and political strategies, or in the suffering caused. And how it is that the government of a people who suffered so much at the hands of discrimination and hatred came to secretly embrace a regime led by men who once stood on the docks of Cape Town and chanted: "Send back the Jews."

Torn between two struggles
In 1940, an Afrikaans-speaking Jewish boy called Arthur Goldreich was living in Pietersberg, the brutally intolerant capital of the Northern Transvaal. Goldreich was 11 and South Africa was at war with Nazi Germany.

One morning, his secondary school headmaster announced that students would be learning a foreign language, German. The implication was clear: many Afrikaners, including some of their political leaders, hoped and believed that Hitler would win the war. When Goldreich's teacher distributed the German "textbook", the Jewish boy found himself staring at a Hitler Youth magazine. He balked and wrote to the prime minister, Jan Smuts, refusing to learn German and demanding to be taught Hebrew. Goldreich got his way and was headed on a path that tore his life between two struggles; against white domination in South Africa, and for the survival of the Jewish state in Israel.

In 1948, both of Goldreich's worlds were transformed within a few days of each other. Israel declared its independence on May 14, a fortnight before the apartheid Nationalist party won South Africa's election and the men who backed Hitler came to power. Goldreich had already determined to go to Israel and fight to save it from strangulation at birth. "The reason I went was the Holocaust and the struggle against British colonialism but, of course, the Nats winning the election left me in no doubt about what I had to do," he says.

Goldreich returned to South Africa in 1954 to join his other struggle. After a few years of political agitation, he became an early member of the African National Congress's military wing, Umkhonto we Sizwe, led by Nelson Mandela. Goldreich wasn't known to South Africa's security police, so he was installed with his family as the tenant of Lillieslief farm in Rivonia, north of Johannesburg, where the underground leadership of the banned ANC met secretly.

Mandela wrote in his autobiography how he turned to Goldreich as one of the few in the ANC's nascent guerrilla army who knew how to fight. "In the 1940s, Arthur had fought with the Palmach, the military wing of the Jewish National Movement in Palestine. He was knowledgeable about guerrilla warfare and helped fill in many gaps in my understanding."

In July 1963, the police raided the farm and captured a slew of wanted men, including Walter Sisulu, the ANC leader, and Goldreich. Five of the 17 arrested at Rivonia were white, all of them Jewish. The captured men and Mandela, who was already in detention, were charged with sabotage and plotting violent revolution, which carried the death penalty. efore he could be tried, Goldreich broke out of a Johannesburg jail and eluded a much publicised nationwide hunt by fleeing to Swaziland disguised as a priest. Goldreich now lives in the affluent and tranquil city of Herzliya on Israel's Mediterranean coast. There was a time when he believed the young Jewish state might provide the example of a better way for the country of his birth. As it is, Goldreich sees Israel as closer to the white regime he fought against and modern South Africa as providing the model. Israeli governments, he says, ultimately proved more interested in territory than peace, and along the way Zionism mutated.

Goldreich speaks of the "bantustanism we see through a policy of occupation and separation", the "abhorrent" racism in Israeli society all the way up to cabinet ministers who advocate the forced removal of Arabs, and "the brutality and inhumanity of what is imposed on the people of the occupied territories of Palestine".

"Don't you find it horrendous that this people and this state, which only came into existence because of the defeat of fascism and nazism in Europe, and in the conflict six million Jews paid with their lives for no other reason than that they were Jews, is it not abhorrent that in this place there are people who can say these things and do these things?" he asks.

Goldreich went on to found the architecture department at Jerusalem's renowned Bezalel Academy, from where he saw architecture and planning evolve as tools for territorial expansion after the 1967 war. "I watched Jerusalem with horror and great doubt and fear for the future. There were those who said that what's happening is architecture, not politics. You can't talk about planning as an abstraction. It's called establishing facts on the ground," he says.

Beyond the green line
There was a part of Johannesburg that most residents of the apartheid-era city never saw. By the 1970s, the bulk of the black population was already forced out under the Group Areas Act, which defined living areas by race. The Sophiatown neighbourhood, once a thriving corner of black life, was bulldozed and replaced by rows of dreary bungalows for whites. But several hundred thousand black people remained in Alexandra township, close to Johannesburg's most affluent neighbourhood, Sandton. The traffic out of Alexandra was one-way. Its residents left each day to work in the mines and shops or to clean homes in Sandton. Whites rarely ventured the short drive off Louis Botha avenue into the overcrowded, often squalid, unpaved back streets of an Alexandra deprived of a decent water supply, adequate schools and refuse collection.

The contrast between West and East Jerusalem is not as stark, but the disparities between Jewish and Arab neighbourhoods are underpinned by attitudes, policies and laws similar to those used against Johannesburg's black population. Most of Jerusalem's Jews never cross the "green line" - the international border that divided the city until 1967 - and many of those that do go only as far as the Wailing Wall to pray. If more Israelis were to travel deeper into the city they claim as their indivisible capital, they would encounter a different world from their own, a place where roads crumble, rubbish is left uncollected and entire Palestinian neighbourhoods are not connected to the sewage system.

According to the Israeli human rights group, B'Tselem, Jerusalem's Jewish population, who make up about 70% of the city's 700,000 residents, are served by 1,000 public parks, 36 public swimming pools and 26 libraries. The estimated 260,000 Arabs living in the east of the city have 45 parks, no public swimming pools and two libraries. "Since the annexation of Jerusalem, the municipality has built almost no new school, public building or medical clinic for Palestinians," says a B'Tselem report. "The lion's share of investment has been dedicated to the city's Jewish areas."

Take the interior ministry offices on each side of the divide. In the west, Jewish residents face a relatively short wait in an air-conditioned hall. In the east, Palestinians begin queueing in the middle of the night, or pay someone else to do so, to stand a chance of being served. Once the sun comes up, they wait for hours in the heat in front of an iron-grilled gate on the street for identity documents, or to register the birth of a child or the death of a parent. In Johannesburg, white people and black people were directed to different entrances of the home affairs ministry and afforded service - or not - according to their skin colour.

There is many a city in other parts of the world where minorities are forced into poor, underfunded neighbourhoods and treated as unwelcome outsiders. Where Israel's self- proclaimed capital differs is in policies specifically designed to keep it that way, as in apartheid Johannesburg. In Jerusalem and other parts of the occupied territories, Palestinians face a myriad of discriminatory laws and practices, from land confiscations to house demolitions, de facto pass laws and restrictions on movement. "The similarities between the situation of East Jerusalemites and black South Africans is very great in respect of their residency rights," says John Dugard, the international law professor widely regarded as the father of human rights law in South Africa and now the UN's chief human rights monitor in the occupied territories. "We had the old Group Areas Act in South Africa. East Jerusalem has territorial classification that has the same sort of consequences as race classification had in South Africa in respect of who you can marry, where you can live, where you can go to school or hospital."

Palestinians in East Jerusalem, often the city of their birth, are not considered citizens but immigrants with "permanent resident" status, which, some have found, is anything but permanent. In the old South Africa, a large part of the black population was treated not as citizens of the cities and townships they were born into but of a distant homeland many had never visited. "Israel treats Palestinian residents of East Jerusalem as immigrants, who live in their homes at the beneficence of the authorities and not by right," says B'Tselem. "The authorities maintain this policy although these Palestinians were born in Jerusalem, lived in the city and have no other home. Treating these Palestinians as foreigners who entered Israel is astonishing, since it was Israel that entered East Jerusalem in 1967."

Israel says it has offered citizenship to anyone born in Jerusalem and that few Palestinians take it up because doing so implies recognition of Israeli sovereignty over the entire city. The government says that by choosing not to become citizens, Jerusalem's Arabs subject themselves to restrictions.

After the entirety of Jerusalem was brought under Israeli rule, the Jewish state annexed about 70 sq km of Palestinian territory and incorporated it within the new municipal boundaries - sometimes taking land from villages such as Said Rhateb's, but leaving the people and their homes outside the city. Israel then wrote laws to permit the government to confiscate property wholesale with one purpose: to transfer land and homes from Arabs to Jews.

Laws of division
"Planning and urban policy, which normal cities view as this benign tool, was used as a powerful partisan tool to subordinate and control black people in Johannesburg and is still used that way against Palestinians in Jerusalem," says Scott Bollens, a University of California professor of urban planning who has studied divided cities across the globe, including Belfast, Berlin, Nicosia and Mostar. "In South Africa there was 'group areas' legislation, and then there was land use, planning tools and zoning that were used to reinforce and back up group areas. In Israel, they use a whole set of similar tools. They are very devious, in that planning is often viewed as this thing that is not part of politics. In Jerusalem, it's fundamental to their project of control, and Israeli planners and politicians have known that since day one. They've been very explicit in linking the planning tools with their political project."

At the heart of Israel's strategy is the policy adopted three decades ago of "maintaining the demographic balance" in Jerusalem. In 1972, the number of Jews in the west of the city outnumbered the Arabs in the east by nearly three to one. The government decreed that that equation should not be allowed to change, at least not in favour of the Arabs.

"The mantra of the past 37 years has been 'maintaining the demographic balance', which doesn't mean forcing Palestinians to leave," says Daniel Seidemann, a Jewish Israeli lawyer who has spent years fighting legal cases on behalf of Jerusalem's Arab residents. "It means curtailing their ability to develop by limiting construction to the already developed areas, by largely preventing development in new areas and by taking 35% [of Palestinian-owned land in greater East Jerusalem] and having a massive government incentive for [Jews] to build up that area."

The political decision to discriminate against Arabs was an open but rarely acknowledged secret. The authors of a 1992 book on Jerusalem, Separate and Unequal, laid bare the policy. The writers, two of whom were advisers to the city's mayors, said that Israeli policy since 1967 was "remorselessly" pursued with four objectives: to expand the Jewish population in the mainly Arab east of the city; to hinder growth of Arab neighbourhoods; to induce Arabs to leave; and to seal off Arab areas behind Jewish settlements.

In 1992, Jerusalem's deputy mayor, Avraham Kahila, told the city council: "The principle that guides me and the mayor is that, in the Arab neighbourhoods, the municipality has no interest or reason to get into any kind of planning process. Thus, we encourage the building of Jewish neighbourhoods in empty areas that have been expropriated by the state of Israel. But so long as the policy of the state of Israel is not to get involved in the character of existing Arab neighbourhoods, there is no reason to require plans."

The mayor at the time, Teddy Kollek, was so identified with the city that he was known as Mr Jerusalem. Talking in 1972 about East Jerusalem, Kollek's adviser on Arab affairs, Ya'akov Palmon, told the Guardian: "We take the land first and the law comes after."

At a city council meeting two decades later, Kollek was confronted by a lone councillor outraged at the evident discrimination in limiting Arab housing development. According to an Israeli newspaper report at the time, Kollek responded that the council was adhering to a policy "followed by all governments since 1967" of restricting the growth of Palestinian neighbourhoods.

By then, discrimination was so entrenched that Kollek's statement drew almost no attention, let alone criticism.

Of the 70 sq km of annexed Arab land around Jerusalem, the state expropriated more than one-third to build homes for Jews without constructing a single house for Palestinians on the confiscated land. The Jewish population of East Jerusalem had fled or been driven out in 1948. A gradual return after 1967 turned to a flood as the settlements ate into the east of the city. Today, the population of Jewish settlements in and close to East Jerusalem has grown to nearly two-thirds that of the Arab neighbourhoods.

"Houses were built for Israelis, but the lands were overwhelmingly taken from Palestinians," says Seidemann. "This was the tool by which Israel was able to consolidate its hold over East Jerusalem. This was based on the law of expropriation for public purposes, but the public bearing the brunt of this was always Palestinian and the public benefiting from this was always Israeli."

One method of preventing further construction by Arabs in the east of the city has been to declare many open areas to be "green zones" protected from building. Bollens says about 40% of East Jerusalem is designated as a green zone, but that this is really a mechanism for land transfer. "The government calls it a green zone to stop Palestinians building homes there, and then when the government wants to develop an area [as Jewish] it lifts that green zoning miraculously and it becomes a development place."

Jerusalem's mayor, Uri Lupolianski - who chaired the city's planning and zoning committee in the 1990s - declined to be interviewed in person on these issues, but responded to written questions. "We have to keep a reasonable balance between residential areas and open green zones. We've designated green zones in all parts of Jerusalem, not just the eastern one," he wrote. "We're keeping the green zones in the entire city free from construction, and we plan to keep it this way. We believe that the development of parks and green zones in eastern Jerusalem will improve the quality of life of the people living there."

During the 1990s, about 12 times as many new homes were legally built in Jewish areas as in Arab ones. Denied permission to build new homes or expand existing ones, many Palestinians build anyway and risk a demolition order. Israel's former prime minister, Binyamin Netanyahu, routinely defends the demolitions by arguing that any civilised society enforces planning regulations. But Israel is the only western society to deny construction permits to people on the grounds of race. Until 1992, so did South Africa.

Land confiscation
Israeli law also restricts where non-Jews may live. "Muslims and Christians are barred from buying in the Jewish quarter of the old city on the grounds of "historic patterns of life of each community having its own quarter'," says Seidemann, in a phrase eerily reminiscent of apartheid's philosophy. "But that didn't prevent the Israeli government from aggressively pursuing activities to place Jews within the Muslim quarter. The attitude is: what's mine is exclusively mine, but what's yours is mixed if we happen to target it."

Israeli law permits wholesale confiscation of property inside Israel or Jerusalem that is owned by Palestinians who live in areas defined as "enemy territory", including the West Bank, which was occupied by Jordan until it lost the war against Israel in 1967. "Any Palestinian who was at any point in 'enemy territory' after 1967, forfeits his property," says Seidemann. "But enemy territory includes the West Bank. It's a remarkable situation. Any property that was ever 'abandoned' by any Palestinian becomes state land and is then 'turned over to the Jewish people'. Any property that once belonged to a Jew is 'recovered to the Jewish people' and turned over to the settlers."

"I hate the term ethnic cleansing in the context of this," he says, "because of the connotations of rape and pillage, which this is not. But there was and is an active government effort using procedures such as this to rid targeted areas of its Palestinian residents and turn it into an exclusively or predominantly Jewish area. And I say, with regret, that the efforts have been moderately successful."

The law is not applied in reverse: Jews who go to live in West Bank settlements do not lose property they may own in Tel Aviv. Last year, Sharon's government quietly confiscated thousands of acres of Palestinian-owned lands within greater Jerusalem without compensation, after a secret cabinet decision to use a 55-year-old law on abandoned property against Arabs separated from their olive groves and farms by the West Bank barrier. Previous governments decided not to apply this law to East Jerusalem and the Sharon administration was embarrassed enough to expropriate the lands in secret before dropping the policy after an international outcry when it came to light. The Palestinians called the confiscations "legalised theft".

"What stands out for Jerusalem and Johannesburg is that it was and is such a prolonged use of planning in pursuit of a political objective," says Scott Bollens. "One distinction with South Africa is the racial identifiers and the racial rhetoric was so blatant, and it was so visible and it was so much part of apartheid South African language. But, despite the difference in rhetoric, the outcomes are very, very similar and the urban landscape Israel has created in the Jerusalem region is just as unequal, just as subjugating of the Palestinians as the 'group area' planning was in South Africa for the blacks."

In 2004, Jerusalem's council approved the first new masterplan for the city since 1959. The plan acknowledges some of the injustices and problems in East Jerusalem, provides for greater construction of homes in some Arab areas, and criticises Jewish settlement in the east of the city. But critics say that at its core is the same obsession with demography and what the plan describes as "preserving a firm Jewish majority in the city".

A former Jerusalem city councillor, Meir Margalit, says the process was flawed from the start because the steering committee of 31 people who put the plan together included only one Arab. "It is characteristic everywhere of colonial regimes which believe that the 'natives' are worthy neither of suitable representation nor of being masters of their own fate. The planning team apparently sets out from the assumption that, in any case, one is dealing with a Jewish city and therefore there is no reason to ask the opinion of anyone who does not belong to the Jewish people," he says.

'Grey racism'
"One cannot but receive an impression that behind the document lies an attempt to restrict the natural increase of the Arabs in the east of the city. With their historical experience, the planning team understands that this cannot be achieved through doing away with all the firstborn sons, but the plan assumes that by restricting the Arabs' living space, they will be compelled to leave the city and move into places in the periphery where they will be able to build without restriction."

Margalit says that the measures used to bring this about, including restrictions on Palestinians travelling into Jerusalem and preventing women who marry men from the east of the city from moving there, amount to "grey racism".

"This, in fact, is the strength of municipal racism. It is neither brutal nor openly visible, preferring to take cover behind apparently neutral formulations. Thus it is always carefully concealed behind consensus-oriented wording, hidden beneath a thick layer of cosmetic liberal language," he says. "This is how a unique term which does not exist in the professional literature was born in our country: 'grey racism'. This is not a racism stemming from hatred of the 'other', but a 'lite racism' rooted in a Zionist ideology which strove to be democratic but, in giving priority to Jewish interests, inevitably deprived others of their rights. When there is no equality, there is bound to be discrimination, and when all those discriminated against are of the same nationality, there is no alternative but to call it what it is - 'national discrimination' - which belongs to the same family as the infamous racial discrimination."

Over the years since the 1967 occupation, Palestinian residents of Jerusalem have made it easier for the Israelis by refusing to vote in city council elections on the grounds that this would amount to recognition of Israel's claim over the entire city. Uri Lupolianski, the mayor, says that maintaining the demographic balance is no longer as crucial under the new masterplan, but he acknowledges that Arab neighbourhoods are disadvantaged. "The situation in eastern Jerusalem does leave a lot to be desired. However, during the last two years, we've taken significant measures to improve it and separate the needs of the residents from political issues," he wrote. "A new central bus station was opened, as well as the biggest Arab school in Israel. I've ordered a new plan to rebuild the roads in those neighbourhoods. Also, we've expanded the route of the light train that's currently in construction to include Arab neighbourhoods. The largest Arab cultural centre in Israel is being planned in the area.

"In the new masterplan, we have designated a wide area in eastern Jerusalem for construction for the Arab residents. There are more than 10 building plans, initiated by the municipality, currently in the works for eastern Jerusalem.

"There's no basis for comparison with South Africa. We do not separate racially between the Jews and Arabs. We do, however, acknowledge the fact that different areas are populated by different groups, and we meet the needs of all groups. We keep the building and zoning laws completely separate from any political issues."

According to the municipality's most recent annual figures, the council issued 1,695 building permits in the city in 2004. Of these, 116 went to Arab parts of East Jerusalem and, of those, 46 were to build new homes. The balance was for extensions to existing houses. In 2004, a total of 212,789 sq metres was built in all of Jerusalem; 7% was in Arab neighbourhoods. Several months ago, Israel's cabinet minister for Jerusalem, Haim Ramon, described the 33ft-high wall dissecting Arab neighbourhoods - which the government has insisted is purely a security measure with no political intent - as having the added advantage of making the city "more Jewish".

The mask of equality
Israel's one million Arab citizens are on a firmer footing. They can vote - the primary evidence, for many angered by the apartheid analogy, that Israel is not the old South Africa - at least, within Israel's recognised borders. But the Jewish state has long viewed its remaining Arab population with suspicion and hostility, and even as the enemy within, through the country's wars for survival against hostile neighbours and in the competition for land. Until 1966, Israeli Arabs lived under "military administration" which allowed detention without trial and subjected them to curfews, restrictions on jobs and where they could live, and required them to obtain passes to move around the country.

Israeli governments reserved 93% of the land - often expropriated from Arabs without compensation - for Jews through state ownership, the Jewish National Fund and the Israeli Lands Authority. In colonial and then apartheid South Africa, 87% of the land was reserved for whites. The Population Registration Act categorised South Africans according to an array of racial definitions, which, among other things, determined who would be permitted to live on the reserved land.

Israel's Population Registry Act serves a similar purpose by distinguishing between nationality and citizenship. Arabs and Jews alike can be citizens, but each is assigned a separate "nationality" marked on identity cards (either spelled out or, more recently, in a numeric code), in effect determining where they are permitted to live, access to some government welfare programmes, and how they are likely to be treated by civil servants and policemen.

Ask Israelis why it is necessary to identify a citizen as a Jew or Arab on the card and the question is generally met with incomprehension: how can it be a Jewish state if we don't know who the Jews are? The justification often follows that everyone in Israel is equal, so it does no harm. Arab Israelis will tell you differently.

Generations of Israeli schoolchildren were imbued with the idea that Arabs did not belong on the land of Israel, that they were somehow in the way. In the mid-1980s, the military was so concerned at the overt expressions of racism and anti-Arab hatred from within its ranks, sometimes cast within the context of the Holocaust, that it thought to re-emphasise "moral values".

In 1965, the government declared some lands on which Arab villages had stood for decades, or even centuries, as "non-residential". These "unrecognised" villages still exist but they are denied basic services, and subject to periodic demolitions and land confiscations.

The US state department's annual human rights report - not a document known for being hostile to Israel - concluded that there is "institutionalised legal and societal discrimination against Israel's Christian, Muslim and Druze citizens". "The government," it says, "does not provide Israeli Arabs, who constitute 20% of the population, with the same quality of education, housing, employment and social services as Jews."

Unequal education
In the 2002 budget, Israel's housing ministry spent about £14 per person in Arab communities compared with up to £1,500 per person in Jewish ones. The same year, the health ministry allocated just 1.6m shekels (£200,000) to Arab communities of its 277m-shekel (£35m) budget to develop healthcare facilities.

Five per cent of civil servants are Arabs, and a high proportion of those are hired to deal with other Arabs. The foreign and finance ministries employ fewer than a dozen Arab Israelis between them, when their combined staff totals more than 1,700 Jews. Until recently, the Bank of Israel and the state electricity company did not hire a single Arab.

Dan Meridor, a former cabinet minister in several governments and a one-time rival to Ariel Sharon for the leadership of the Likud party, blamed social factors and years of conflict - not an intent to discriminate - for the low representation of Arabs in the civil service. "I don't have the figures, but I think generally speaking it may be true. One has to check whether it relates to the level of education. If, for example, people in the government civil service are of higher education than the general public and the Arab population are generally lower in education than the general public, it may explain some of the differences," he says.

"Some jobs may be less accessible. Not officially, but in fact. Take the number of workers in, say, the electricity company that are Arabs and it is much much smaller than the proportion in the country. There's a historical reason for that. Jews fighting Arabs and Arabs fighting Jews was not only with weapons. There were two communities fighting for hegemony and power in the very broad sense of the word. This is the ethos of the Jews versus Arabs in the electricity company, on the land, in the labour market, in the building industry. Generally speaking, there has been improvement, but there is still, I think, in some areas, a lot to be done. Not on the legal basis - legally, everyone is equal - but on the opportunity basis."

Arab Israelis who fail to find employment in the civil service because of a lack of education say that this is the result of government policy. Israel maintains separate schools for Arabs and Jews on the grounds of language differences, but many Israeli Arab parents say this is a cover for systematic discrimination against their children.

Separate and unequal education systems were a central part of the apartheid regime's strategy to limit black children to a life in the mines, factories and fields. The disparities in Israel's education system are not nearly so great and the intent not so malign, but the gap is wide. The Israeli education ministry does not reveal its budget for each of the two systems, but 14 years ago a government report concluded that nearly twice as much money was allocated to each Jewish pupil as to each Arab child.

A Human Rights Watch report two years ago said the situation has not significantly changed and there remain "huge disparities in education spending" and that "discrimination against Arab children colours every aspect" of the education system. The exam pass-rate for Arab pupils is about one-third lower than that for their Jewish compatriots. In 2004, a threat by angry Arab Israeli parents in Haifa to register their children in Hebrew-language schools so shocked Jewish parents that the authorities quickly took steps to improve Arab schools there.

The suspicion with which the state still regards its Arab citizens was displayed by the recent revelation that the Shin Bet security service places Jewish teachers into Arab-language schools to monitor the activities of the other teachers. A Shin Bet official is also a member of the committee appointing teachers.

Israel's education ministry failed to respond to requests for an interview. Approached individually, a senior politician who formerly had responsibility for education and who has acknowledged that discrimination exists, and spoken against it, declined to be interviewed, saying he did not wish to criticise his former ministry.

Asked for an interview to respond to specific allegations of discrimination in the civil service, education and housing, the government replied through the deputy director general of the Israeli foreign ministry, Gideon Meir. He conceded that there had been de facto discrimination but said it was rooted in historic conflicts and suspicions, not an intent to subjugate.

"There was never an intention because if we really wanted to create apartheid we could have done it. The fact is we have never done it, there was never even a thought about discriminating," he said. "Yes, during certain years there were less funds given to the Arabs. There were also years after 1948 when the Arabs were under military control. Slowly, slowly the Arabs made their way up. The Arabs today can go into the civil service. The foreign ministry opened to Arabs only in 1989. It took time to build trust. I have in my department today a Bedouin.

"The fact is that Arabs were always members of the Knesset, even those who were delegitimising the Jewish state. They can participate. Is it enough? No, it's not enough. Can we do more? Yes, we can do more. But ask the Arabs who live in Israel if they want to be part of a Palestinian state and they say no, they prefer to remain where they are. Why?"

Sharon laws
Under Sharon's tenure as prime minister from 2001, new forms of discriminatory legislation were passed, including the now notorious Nationality and Entry into Israel Law, which bars Israelis who marry Palestinians from bringing their spouses to live in the country. The legislation applies solely to Palestinian husbands or wives. Hassan Jabareen, a lawyer and director general of Adalah, the Legal Centre for Arab Minority Rights in Israel, challenged the law before the supreme court. He told the judges there was a parallel with a landmark case in 1980s South Africa - the Komani case - which successfully challenged the pass laws that broke up black families by preventing spouses from joining their husbands or wives in towns.

"As a constitutional lawyer, I find myself bringing landmark cases from the apartheid era before the Israeli supreme court because comparative cases from modern and democratic countries are not that helpful. You have to bring harsh cases in order to warn the supreme court about racist laws; not discriminatory, but racist," said Jabareen. "We had a case two years ago which essentially said Arabs would receive lower child-support allowances. We compared it to laws of economic discrimination in apartheid South Africa. In the end, the Knesset scrapped the law."

Justice was also not always blind to the difference between Arab and Jew. In June 1986, 18 months before the outbreak of the first Palestinian uprising (intifada), a Tel Aviv judge drew protests for sentencing a Jewish Israeli to six months' community service for killing an Arab boy. But the present supreme court has proved more willing than its predecessors to confront discrimination. It has yet to rule on the Nationality and Entry Law, but the then Labour interior minister in the coalition government, Ophir Pines-Paz, called it "draconian and racist" and pressed parliament to amend the legislation. The Israeli parliament responded by extending the regulations. In the past few days alone, the police have arrested eight women, the Palestinian wives of Arab Israelis, in the Israeli village of Jaljulya and deported them to the occupied territories. Among women living under the threat of future deportation is the wife of an Israeli football player. MPs say the law has nothing to do with discrimination and everything to do with the security threat posed by Palestinians.

Its backers question how anyone can accuse them, as Jews at the end of a long line of persecuted generations, of racism, or in any way of resembling the old Afrikaner regime. But for years, much of South Africa's Jewish population and successive Israeli governments made their own pact with apartheid - a deal that exchanged near silence by most South African Jews on a great moral issue for acceptance, and clandestine cooperation between Israel and the Afrikaner government that drew the two countries into a hidden embrace.

Interpol demanded that Yemen issue arrest warrants and turn over all the names, photographs, fingerprints and other details of the escaped prisoners so it could send out urgent "Red Notices" on each renegade.

"Unless Interpol Red Notices are issued urgently for these fugitives and unless the world community commits itself to tracking them down, they will be able to travel internationally, to elude detection and to engage in future terrorist activity," Mr Noble said.

Yemen security forces set up checkpoints around the capital on Sunday, hoping to catch the fugitives before they escaped to the protection of semi-lawless mountain tribes.

But the terrorists have a headstart after Yemeni officials, who said on Friday that some escapees were linked to al-Qa'ida, took until Sunday to disclose that they included Badawi -- in his second escape from a Yemeni jail -- and Fawaz al-Rabahi, who was convicted of bombing the French tanker Limburg on the Yemeni coast in2002.

A security source in Yemen said the escapees had help from more than one accomplice on the outside, because the 140m tunnel they used was believed to have been dug from the mosque to the prison. The tunnel entry was in the women's section of the mosque, which is less frequented than the male section because women mainly pray at home.

The 13 militants were among 23 inmates who broke out of jail in the capital, Sanaa.

The escape is a major embarrassment for Yemeni authorities, who have cracked down on militants in the ancestral land of Osama bin Laden and positioned themselves as an ally of the US in the war on terror.

Some US officials have questioned Yemen's commitment to the US war on terror, suggesting the country has split allegiances.

A Yemeni state-run website, www.almotamar.net, said 17 of those who escaped were convicted of al-Qa'ida-linked crimes, while the other six were awaiting trial for similar charges.

Saudi Arabia's ambassador to the US, Prince Turki al-Faisal, expressed confidence that the escapees would be caught "because they have nowhere to go".

The comments by Moussa Abu Marzouk, the right-hand man to Hamas' political leader Khaled Mashaal, came as Hamas leaders from Syria and Palestinian areas gathered here and began talks Monday with Egyptian officials after the group's stunning election victory.

In a statement, Abu Marzouk blamed the Fatah movement for refusing to participate in a national unity government, which Hamas wants to form to avoid an Israeli veto on it.

"We will act in the legal framework to get out from this deadlock, which our brothers in Fatah have put us in," Abu Marzouk told reporters late Sunday.

Abu Marzouk said any government set up by Hamas "will not make security arrangements with Israeli or hand over (Palestinians) who fire rockets (on Israel)." He also insisted the group would not recognize Israel.

Hamas is under growing international pressure to renounce violence and recognize Israel's right to exist as a condition for receiving millions of dollars in foreign aid _ the lifeline of the Palestinian economy. Western powers have said they will not fund a Hamas-led Palestinian government otherwise.

Egyptian intelligence chief Omar Suleiman said last week that Egypt intends to tell Hamas leaders that they must recognize Israel, disarm and honor past peace deals.

The leaders are executed to meet later with senior Egyptian officials, including Suleiman and Foreign Minister Ahmed Aboul Gheit and Omar Suleiman.

An Egyptian official said Monday that Egyptian officials will repeat to Hamas leaders that they should comply with all obligations undertaken by the Palestinian Authority.

"They will also be advised that they should keep all the achievements the Palestinian people have made regarding peace and security,"said the Egyptian official, speaking on condition of anonymity because he was not authorized to speak publicly.

Mashaal arrived from Damascus leading a delegation from the movement's outside while another delegation from Gaza led by Mahmoud al Zahar arrived from the Palestinian territories.

Before the leaders started their meetings at a Cairo hotel, Abu Marzouk acknowledged that the movement faces difficulties in its attempts to set up a government.

"The most daunting task we face is to recognize the Zionist enemy and the obligations which the Authority had in the absence of similar (Israeli) obligations," he said.

Marzouk said Hamas officials had met with Palestinian President Mahmoud Abbas, Fatah's leader, and that Abbas did not insist that Hamas had to recognize Israel or make other concessions before Fatah would negotiate a deal to form the next Palestinian government.

Speaking of past peace deals between the Palestinians and Israel, Marzouk told reporters: "There is no authority that inherits another authority without abiding by the agreements already made. But the other party also should be committed to the agreements."

He said Hamas would review all past deals.

"If the agreements contradict logic and rights, there are legal measures to be taken ... there are no eternal agreements," he said.

Israel's acting prime minister, Ehud Olmert, said Monday he will work with Abbas as long as he does not join forces with Hamas. Olmert also said Israel would continue transferring monthly tax payments to the Palestinian Authority as long as Hamas was not in control.

Israel agreed Sunday to transfer $54 million (euro45 million) in desperately needed tax money to the Palestinian Authority. Israel's monthly transfer of the taxes and customs duties it collects on behalf of the Palestinians is crucial to the functioning of the Palestinian Authority.

The Israeli Cabinet decided to transfer the money because Hamas was not yet in the government, Defense Minister Shaul Mofaz said.

However, doctors said that the possibility that Sharon would regain consciousness, though slim, cannot yet be completely ruled out and that there was a slight chance that he could regain some of his physical and mental capabilities.

"His age, his medical background and the dramatic nature of his stroke are not in the prime minister's favor," said Dr. Avraham Lazari, deputy director of the Re'ut rehabilitation hospital and an expert on rehabilitative medicine.

But he added that people in Sharon's condition did occasionally regain consciousness.

"The tendency worldwide is to wait until half a year has passed since the event in order to say whether the patient will regain full consciousness or not," Lazari said.

The prime minister's own doctors have not yet offered any assessment of the likelihood of his regaining consciousness.

Generally, a vegetative patient can breathe on his own, go through regular sleep cycles and may even make occasional involuntary movements such as opening eyes, but is not aware of his surroundings and cannot speak or heed instructions.

Veteran Israeli politician Sharon, architect of Israel's Gaza pullout last summer, has remained in critical but stable condition since he suffered a massive stroke and cerebral haemorrhage on Jan.4.

Experts believe that the ex-general is unlikely to return to the Israeli political stage.

Indeed, one could say without exaggeration that Hamas has outperformed itself, the enormity of the victory taking the movement by surprise, throwing its leadership off-balance, at least in the immediate aftermath of the elections. To be sure, Hamas hadn't hoped and certainly didn't plan for a landslide win. Hamas had repeatedly indicated that it would prefer to be in a position to influence the government, but not to govern itself.

In pre-election interviews Hamas leaders and candidates voiced their hope that the movement would win between 50 and 55 seats, which would have enabled the movement to assume the role of a strong opposition to a presumed Fatah-led government. It is now amply clearly that Hamas itself failed to appreciate the extent of the Palestinian public's disenchantment with the PA, including its misgovernment as well as failure to get Israel to end its occupation of the Palestinian homeland.

Widespread corruption and graft permeating the PA -- indeed, rampant nepotism, favouritism, embezzlement and cronyism, as well as chronic lawlessness, chaos, and lack of personal security for the average Palestinian -- had a strong impact on voter behaviour. But it is also true that the underlying reasons for the democratic coup have to do, first and foremost, with the increased savagery of the Israeli occupation, which is nothing short of an act of rape, and the PA's failure not only to end the occupation but even to mitigate its manifestly brutal effects, impacting all aspects of Palestinian life.

Indeed, ever since the conclusion of the Oslo Agreement more than 10 years ago, Israel effectively confiscated over 50 per cent of the West Bank and implanted in occupied land dozens of Jewish-only colonies inhabited by Talmudic messianic fanatics, most of whom view non-Jews as scum, vermin and dirty animals that ought to be exterminated. Moreover, Israel effectively deprived Palestinians of the vast bulk of their freedoms and human rights and jailed tens of thousands of political prisoners in detention camps without charge or trial.

The accumulative outcome of this policy of repression, along with the frustrations of a failed and futile peace process that only provided a cover for Israel's genocidal treatment of the Palestinians, eventually led the Palestinians to shun Fatah and opt for Hamas. True, Hamas will not be able to achieve miracles for the Palestinian people, especially as far Palestinian efforts to end the Israeli occupation are concerned. To be sure, Hamas didn't promise voters that it would liberate Jerusalem in the next four years or get millions of refugees repatriated and compensated. However, Hamas, which ran on a "Change and Reform" platform, promised to put the Palestinian house in order, which is doubtless the first step towards national liberation.

Hamas will face many challenges and pitfalls, especially if the US and the EU follow through on threats to sever economic aid to a Hamas-led PA. The Quartet, whose members (US, EU, Russian and UN) met in London on Monday to discuss the rise to power of the Islamist movement, has urged Hamas to abandon armed resistance and recognise the state of Israel. In addition, the Israeli government moved to withhold a badly-needed $40 million dollar fund of tax returns, apparently for the purpose of deepening the post-electoral victory crisis facing Hamas, and indicating to the Palestinian people that Israel is the ultimate boss, not any Palestinian government.

Hamas is already seeking to avert a head-on collision with the international community, especially in the absence of any semblance of Arab solidarity. Hamas leaders in the West Bank and Gaza Strip sought in earnest to assure the international community that the movement would respect the international commitments of the PA but urged the world to respect the Palestinian people's free choice. This week, winning Islamist candidates told Western media, which flocked to Palestine to cover the "Palestinian Tsunami", that Hamas would prove itself to be a force of moderation and peace, and that the movement would definitely move to mend its erstwhile negative image.

On the domestic front, Hamas is seeking to form the broadest possible coalition government, probably one that would include academics and technocrats, untainted with the "terror" canard. Hamas has been urging Fatah to join the upcoming government, arguing persuasively that the weight of the Palestinian national burden exceeds the ability of any one faction to bear.

Fatah, embittered by its crushing defeat, has so far refused to join the contemplated Hamas government, on the grounds that Fatah should leave its "foe" and "rival" to "face its fate". "Let it fail, so that the people will see," said one angry Fatah candidate. However, it is likely that some Fatah leaders will sooner or later join the Hamas-led government, either out of concern for national responsibility or the attraction of public office.

There is no doubt that Hamas will have to carefully and wisely navigate both itself and the entire Palestinian national destiny through the treacherous waters of forming a functional government under occupation at home and amid hostile international storms and currents. To do that, Hamas will have to show not a small amount of pragmatism, including a possible de facto recognition of Israel.

There is no guarantee, however, that Israel will reciprocate. Israel believes that Hamas' victory is dangerous, not so much because of the "violence issue" or non-recognition of Israel (which Israel utilises for propaganda purposes) but rather because with Hamas in government, Israel would not be able to force the PA into succumbing to Israeli blackmailing tactics.

Needless to say, Israel wants a weak Palestinian partner that can be easily bullied into submission, a partner that would accept functional arrangements here and there, one that would more or less accept an enhanced and less harsh Israeli occupation, instead of genuine liberation from a nefarious and dehumanising colonialism, all in return for vague commitments to a Palestinian state without known borders and, indeed, without substance.

Hamas will not be that kind of partner and will insist on total and absolute Israeli withdrawal from the 1967 territories, including East Jerusalem. This is Israel's real concern, not Hamas' armed resistance and refusal to recognise Israel.

This is why Israel will seek to use every possible red herring or distraction to evade the crux of the matter; namely the need to adopt a strategic decision to give up the stolen land and spoils of the 1967 War.