It was all done very secretly last June, when cabinet ministers decided to let the state confiscate East Jerusalem property belonging to Palestinians living in the West Bank.

The decision revived a long-dormant law from 1950, which allowed Israel to seize property from Palestinians who fled or were driven out of their homes during the 1948 war that led to Israel's independence.

Lawyer Dan Yakir, from the Israel Civil Rights Association, says the law was what he calls "legally problematic," even then.

"The consequence of this law is confiscation of property, without any compensation," he said.

The cabinet decision to revive this law came to light last month, after Palestinian property owners took their complaints to the court. Palestinian claimants and their lawyers said Israel was trying to seize thousands more hectares of land to solidify its control over East Jerusalem, ahead of any future peace talks.

Israel captured East Jerusalem from Jordan during the 1967 Mideast War, later annexed it and now claims all of Jerusalem as its capital, a claim not internationally recognized. Palestinians want the eastern sector as the capital for their future independent state.

Dan Yakir says the special circumstances surrounding East Jerusalem makes the application of the old "property law" even more untenable. But, he says it also constitutes a basic violation of human rights.

"Applying this law would be a grave infringement upon not only the right to property, but other rights that incur from the property in East Jerusalem." he concluded.

This week, Attorney General Menachem Mazuz struck down the cabinet decision, saying it is legally "indefensible" and violates both Israeli and international law.

Mr. Mazuz also says reviving the law would invite international condemnation of Israel, which has already come under harsh criticism from the International Court of Justice in the Hague for building its so-called security barrier in and around the West Bank.

Although some right-wing politicians have accused Mr. Mazuz of playing politics, Dan Yakir says the decision is based on the solid legal considerations. Lawyers for Palestinian claimants say it is a victory for the rule of law in Israel.