The hopes raised by last month’s Annapolis conference on Middle East peace, at which Israel and the Palestinians undertook to negotiate a solution to the conflict by the end of next year, are already in danger of being dashed. Only days afterwards, the Israeli government gave the go-ahead to complete work on arguably the most contentious of its settlements on occupied Arab land.

Despite recommitting to peace parameters drawn up by US-led mediators calling for a freeze on settlements, the government of Ehud Olmert issued tenders for housing and infrastructure construction at Har Homa, south-east of Jerusalem.

Neither the significance of Har Homa, nor the timing of this initiative, can easily be understated.

The original decision to build 6,500 homes for up to 30,000 Jewish settlers at Har Homa – Jabal Abu Ghneim to the Palestinians – was taken by the government of Benjamin Netanyahu in February 1997. That also followed an ostensible breakthrough in the peace process – Israeli withdrawal from most of the West Bank town of Hebron – and came just ahead of “final status” talks under the Oslo accords, called off as the bulldozers went in.

Har Homa was widely denounced as contravening international law and publicly criticised by President Bill Clinton. The point of Har Homa (which means “mountain wall”) was to close the last corridor linking Arab east Jerusalem to Bethlehem and the West Bank. It is the last rampart in the wall of settlements encircling east Jerusalem, closing off any chance of it becoming the capital of a future Palestinian state. Just as talks restart on the borders of the two states, the possibility of sharing Jerusalem – essential to that outcome – is being foreclosed.

Condoleezza Rice, US secretary of state, has warned Israel this might “prejudge final status negotiations” and sink the relaunched peace effort. But that is not enough.

Israel believes it has assurances from President George W. Bush – in a letter of April 2004 – that it can keep all the settlements around Jerusalem, and that Washington will concentrate its fire on ensuring the Palestinians confront Hamas and other militant factions. The Bush administration has been the most indulgent of a succession of US governments that have turned a blind eye to Israeli land grabs.

If it wants to secure peace in the Holy Land, that cannot continue. Ten years ago Har Homa was the beginning of the end of the peace process. Unless it wants another failure, Washington must tell Israel it can either have peace or keep all its settlements on occupied land. It cannot have both.