A view over the Old City in occupied East Jerusalem. (Maan Images)

Fawzia al-Kurd's home is nothing special. She has lived within its walls for the past quarter of a century, in the heart of East Jerusalem's Sheikh Jarrah district. The house is tidy. But at first glance, it would not appear to be worth $10m.

That is the sum that the al-Kurd family claim they were offered by Israeli buyers as an incentive to move on, a figure confirmed by their lawyer. Fawzia refused to make a deal, whatever the price. It would have hurt her 'integrity' to take it and leave, she said. So last week she received an eviction notice, based on an arcane legal claim to the site that her husband first called home in 1956.

If she and her family are forced to leave as a result, ultra-Orthodox Israeli settlers from a company called Nahlat Shemoun - linked to a nearby Jewish shrine - will take over half of the house. Settlers have already occupied her illegally built extension. The Kurd house may soon be draped with Israeli flags - as is another a handful of metres distant - and Arab East Jerusalem will have shrunk perceptibly once more.

'Their objective [in trying to evict me] is political', said Fawzia. 'They are claiming as theirs something that is not.'

The story of Fawzia's house reflects the larger battle for the future of Jerusalem, a city contested with an intensity and urgency unmatched anywhere else in the world. In the interminable saga of the Middle East peace process, agreement on the 'final status' of the Holy City remains as elusive as ever.

As Fawzia pondered her eviction notice, Gordon Brown arrived in town to tell the Knesset that he favoured Jerusalem as a shared capital of two separate states: Israeli and Palestinian. US presidential hopeful Barack Obama followed, and adroitly back-tracked on a recent assertion that the city, as the capital of Israel, 'must remain undivided'. 'Final status,' he said, would be for the 'two sides to negotiate'.

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What is at issue now is what has been at stake since Israel's foundation and before: how can two peoples' claim on a city as the centre of their national ambitions ever be reconciled? Since the 'uniting' of Jerusalem in the Six Day War of 1967, when Israeli troops overran Jordanian positions on the east side of the city, Palestinians have largely watched, furious but impotent, as Israeli construction in Arab East Jerusalem has proceeded apace. Israeli flags dotted around Palestinian quarters bear defiant testimony to Jewish insistence on a unified city and capital.

And despite the evidence that some now in Israeli politics, not least Vice-President Haim Ramon, would like to see the city shared, with special arrangements made for the so-called Holy Basin at its heart - home to the major shrines - the 'facts on the ground' point to a concerted Jewish expansion into the Palestinian east of the city.

Small settlements - like those encroaching on Sheikh Jarrah and other neighbourhoods - have set their sights on the east's strategic points, a series of stepping-stones linking Jewish West Jerusalem via East Jerusalem with the Old City. Larger ones such as Har Homa and Ma'ale Adumim have expanded as ever-growing buffers which hem in the Arab neighbourhoods, linking the Israeli settlements ever closer to the centre.

All that is left for Arab Jerusalemites is resistance in the Israeli courts, the dream of a capital and the hope that frightens Israelis most - that their increasing demographic advantage will save the city for them in the long run.

'Final status' notwithstanding, the city is divided already - psychologically, culturally and politically. There is the Jewish west of the city with its vast hinterland of malls and cafes and street musicians. There is the beleaguered Arab quarter of the Old City, where large families cram into improbably small apartments. And there are places where the two sides do meet - like the Mamilla Mall just outside the Old City's Jaffa Gate, where wealthier Palestinians mingle, under the pavement umbrellas, sipping orange juice and black coffee with secular and religious Jews - and among the apartment blocks up on French Hill near the Hebrew University.

In recent months Jewish West Jerusalem has been forced to re-examine its assumptions about its Arab neighbours - which it had believed posed considerably less threat than those living on the West Bank - after three attacks launched by residents living in the city's east, all of them apparently unrelated to organised militant groups.

There was a 'copycat' attack last week in which a resident of East Jerusalem went on the rampage with a bulldozer on the eve of Obama's visit, leaving two Israelis injured and the driver shot dead by a settler. A similar incident earlier this month made headlines around the world and led to calls for a security crackdown in the east of the city.

In the immediate aftermath of last week's attack, one elderly Jew at the scene asked anyone who would listen whether it was not time to 'screen' Arab employees of the municipality more carefully.

The comments follow the revelation last week that in the first six months of this year 71 Palestinian residents of East Jerusalem had been arrested on terrorism charges, double the number for last year.

The struggle for the city's heart and soul seems to be accelerating even as polls show that the majority of Israelis - if not Jewish Jerusalemites - say that they would make concessions on the city as part of a lasting and final peace. Palestinian suburbs have been separated from the inner city by Israel's separation wall, while the new light railway, which when completed will connect West Jerusalem to Pisgat Ze'ev, will also separate Palestinian neighbours, further fragmenting the city's Arab population.

The key battle, however, is the one being fought in East Jerusalem over the corrosive issue of who is entitled to reside inside the city and to hold the blue ID card that brings with it entitlement to healthcare and social services.

The growing proliferation of 'facts on the ground' in East Jerusalem, combined with a lack of opportunity for Palestinians to build, has depressed Ziad al-Hammouri of the Jerusalem Centre for Social and Economic Rights. Hammouri says that fewer than 5 per cent of permits to build in East Jerusalem are processed, and that when they are they are often too expensive for Palestinians to be able to afford them. The result is an inevitable pressure not to remain.

To read the full article please visit The Guardian.