Samih Bashir, a Palestinian lawyer, plans to move early next year to a large house with two living rooms, three bathrooms and a big backyard where his four children can play. It is in a Jerusalem neighborhood called French Hill -- a part of the city that Israel says will never become part of a Palestinian state. Bashir worries that his current neighborhood, Beit Hanina, would end up under Palestinian control if the two sides ever reach a peace deal.

In some ways, the move is a psychological one. There is no legal difference between Beit Hanina and French Hill. Both are parts of East Jerusalem that Israel occupied during the 1967 Arab-Israeli war and unilaterally annexed soon after, a status not recognized by the international community. But French Hill is a predominantly Jewish neighborhood, and Beit Hanina is overwhelmingly Arab.

"They're talking about giving this area back to the Palestinians, and then we would be stuck here," Bashir, who holds Israeli citizenship, said of Beit Hanina. "My wife works in the Jerusalem municipality as a social worker. How would she get to her job if this area becomes Palestinian?"

Many of the 250,000 Palestinians who are residents of East Jerusalem, but who are not Israeli citizens, are equally concerned about losing access to Israeli services such as medical care and social security if their neighborhoods became part of a Palestinian state. A growing number are moving into predominantly Jewish neighborhoods such as French Hill or Pisgat Zeev -- areas that Palestinian officials consider to be illegal Israeli settlements.

Jamal Natshe, a Palestinian real estate agent, said thousands of families from East Jerusalem, the West Bank and even Jordan have moved into mostly Jewish areas in the past two years. He said their main concern is the 25-foot-high concrete wall that Israeli authorities have built to separate the parts of the city under their control from Palestinian areas. Outside of urban areas, the barrier generally consists of fencing, barbed wire and roads used by Israeli security forces. Israel says the barrier is a security measure designed to prevent attacks; Palestinians say its construction amounts to a unilateral seizure of about 8 percent of the West Bank.

Crossing points are meant to ease access for Palestinians with permits to enter Israel, including the 250,000 who have Israeli-issued identity cards that indicate they have the right to reside in Jerusalem.

Natshe said that some Palestinians are moving because they do not want to lose the Israeli benefits. "If Israel proves that someone is living outside Jerusalem, they would lose their ID," Natshe said. "This is a threat to many families because of the economic situation. They rely on the Israeli system."

Palestinian officials say they want Palestinians to move into mainly Jewish neighborhoods.

"We encourage people to buy in the settlements because we think this is all Palestine," said Hatem Abdul Qader, a member of the Palestinian parliament from Jerusalem. "People are in a panic over losing their ID cards. They are afraid of being isolated by the wall. If people can maintain their existence in Jerusalem and in Palestine through living in the settlements, I hope whoever can afford it will do that."

Abdul Qader said more than 30,000 families would like to move. One of the goals of the wall was to maintain a Jewish majority in Jerusalem, but Abdul Qader said the barrier is now encouraging Palestinians to move into mainly Jewish areas.

Natshe said many of these families would prefer to move to predominantly Arab neighborhoods such as Beit Hanina, with 26,000 residents, or Shuafat, with 36,000, both of which are on the Israeli side of the barrier, except for a portion of Shuafat. But there is virtually no housing available in these areas. Prices have become so high that it is cheaper to rent or buy in neighboring Pisgat Zeev, where a three-bedroom apartment can be rented for about $1,000 a month. A similar apartment in Beit Hanina is at least $1,400.

Natshe estimates there are at least 300 Arab families among the 42,000 residents of Pisgat Zeev. Yusuf Majlatun, a Palestinian contractor, moved in seven years ago with his wife and three sons.

Majlatun said there is at least one Palestinian family in all of the buildings on his street. He said he has correct, but not friendly, relations with his neighbors. Soon after he moved in, he invited several neighbors to spend an evening drinking arak, a licorice-flavored liqueur. They drank and talked until 2 a.m., he said, but never invited him in return.

Another time, his downstairs neighbor, an observant Jew, accidentally turned out the light in her living room just as she was about to sit down to Friday night Shabbat dinner. Observant Jews do not turn lights on or off on the Sabbath, in obedience to religious law barring the creation or extinguishing of any flame. She knocked on Majlatun's door and asked for help. He entered her apartment and flicked the light switch for her.

"It's better here than in Beit Hanina," he said. "When you walk through the streets, you hear Arabic, Russian and Hebrew. There are fanatics everywhere, but most of the people here respect each other."

Yet tensions are growing in Pisgat Zeev. Last spring, dozens of Jewish youths attacked two young Palestinians at the nearby mall, seriously wounding one of them. On a recent evening at the three-story mall, many of the customers were Arabs. Some of the other shoppers said they were not happy with the ongoing demographic changes.

"The whole mall is full of Arabs, and I find it disgusting," said a woman browsing in a bookstore who would not give her name. "We live in the state of Israel, a Jewish state, and I don't want to see them here. They are our enemies. They hate us, and they always will."

Pisgat Zeev, an area developed in the mid-1980s, attracts young couples, new immigrants and observant Jewish families because it is one of the more affordable areas on the northern outskirts of Jerusalem. Some residents said they did not want Palestinians in the neighborhood and would not sell their homes to Palestinians. Some rabbis have also forbidden selling homes to Palestinians.

In French Hill, an older neighborhood closer to the center of the city, fewer tensions are apparent. It is a more affluent area than Pisgat Zeev, populated mostly by professionals. Bashir, the lawyer, said five other Arab families own homes near the one he is renovating.

"The services there are better than here in Beit Hanina," said Bashir's wife, Tagreed. "The streets are clean, there is regular garbage collection, and there are roads with no potholes."

Some Israelis who support a Palestinian state say they do not believe that Palestinians moving into mainly Jewish areas of Jerusalem will help that cause. Daniel Seidemann, a lawyer who has been an outspoken opponent of the Israeli barrier, said that since the end of the Crusades, Jews and Arabs have preferred to live in separate neighborhoods. He said tensions in the city have increased recently after East Jerusalem Palestinians drove bulldozers into crowds of Israelis in three separate incidents. In one attack, three Israelis were killed.

In the mixed Arab-Jewish town of Acre, ethnic tensions led to five days of rioting when an Arab man drove his car into a Jewish neighborhood on Yom Kippur, the Day of Atonement when Jews are forbidden from driving.

"This is a greater blurring of the distinctions between Jewish and Arab neighborhoods than anything we've seen since 1967," he said. "Palestinians cannot allow themselves to be trapped on the Palestinian side of the wall lest they be plummeted into poverty. They are culturally, politically and religiously tied to the West Bank, but economically connected to Israel."