A court battle is already under way to halt the demolition of the 88 houses that form the entire valley neighbourhood of Al Bustan in Silwan, below the walls of the Old City. The Jerusalem municipality says it wants to turn it into a national park because of the site's biblical and archaeological importance.

Israeli human rights campaigners and lawyers say the move is an escalation of efforts to reduce the Arab population of East Jerusalem, which Palestinians want as the capital of a future Palestinian state, and strengthen a network of Jewish settlements there.

The park planned by the municipality on what was mainly open land until the 1960s would help to connect several Jewish settlement enclaves in Silwan to those in the nearby King David's City, where the campaigners claim 55 per cent of the once entirely Arab population are now Jewish.

While the city argues that most of the houses in the area were built without permits it has issued demolition orders under law 212, a rarely used blanket measure dating from before the Six Day War, which allows the state to demolish buildings whether they were legally erected or not.

It was used to demolish Arab houses built in the Jewish quarter of the Old City one and two years after its capture in 1967.

Mohammed Badran, 43, who lives in one of the oldest houses in the neighbourhood, built in 1961, and has received one of the first 10 specific demolition orders, said yesterday he believed his father had been given a permit to build his house by Jordan, then controlling East Jerusalem. Although he did not have the permit now he produced a British-stamped deed showing his great grandmother had legally taken possession of the land in 1920.

Mr Badran said he had worked for the Jerusalem municipality for 20 years as a refuse collector. "This is the reward I get ... I have no place to go. If my home is illegal why have I been paying arnona [local taxes] all these years?" Mr Badran said that funds needed to buy an expensive computer and medical treatment for his blind son would now have to go on lawyers' fees.

The municipality denies the motives for the planned demolition are political. Uri Shetreet, the city engineer, has said it wants to enlarge a small archaeological site and in November wrote to the city's construction department describing the discovery of 5,000-year-old fragments as being of "national and international importance". He said, using the district's Jewish name: "I order the removal of all illegal construction in the King's Valley."

But Meir Margalit, of the Israeli Committee against House Demolitions, said: "Everything in Jerusalem is political. I do not believe this dangerous project comes from the municipality, but from the Prime Minister's office." He said he believed it was part of a deal struck by Ariel Sharon with Jewish settler organisations that in return for withdrawing from Gaza he would strengthen settlements in the West Bank and Jerusalem, and was part of a systematic effort to undermine hopes of a peace settlement in which Palestinians would insist on East Jerusalem as its capital.

Mr Margalit added that the government wanted the demolitions to take place while world attention was focused on Gaza disengagement.

Sami Ershid, the lawyer representing Mr Badran and five other Al Bustan residents, said that he believed the plan amounted to a "population transfer" of Arabs from the valley. "It seems strange that after more than 35 years Mr Shetreet has suddenly discovered that this is an area of great religious and historical significance."