It isn't necessary to be unduly cynical to wonder exactly what it takes for British diplomats to be "appalled" by anything. But that was the reaction to Israel's eviction of Palestinian families from the east Jerusalem neighbourhood of Sheikh Jarrah – the ugly face of ethnic cleansing and the creation of new "facts on the ground" that make nonsense of hopes for any movement in the moribund peace process.

The spokesman at the British consulate who went public with that undiplomatic A-word added bluntly: "These actions are incompatible with the Israeli professed desire for peace. We urge Israel not to allow the extremists to set the agenda."

The UN, not normally given to extravagant displays of anger either, was only a tad less outspoken. Robert Serry, its representative, deplored "provocative" and "totally unacceptable actions by Israel", lambasting it for contravening the Geneva Conventions, ignoring the demands of the Quartet, heightening tensions and undermining "international efforts to create conditions for fruitful negotiations to achieve peace". From Washington the state department more or less agreed – also calling the action "provocative".

Like everything to do with this treacherous territory, the eviction issue is fraught with symbolism and complicated by a toxic mixture of high politics and low cunning. In the 1930s the Shepherds Hotel building in Sheikh Jarrah served as the headquarters of Haj Amin al-Husseini, the pro-Nazi Palestinian nationalist leader and mufti of Jerusalem. Some of the evicted Palestinians were refugee families who hailed from Haifa before the 1948 war. After 1967 the building was sold by Israel's "custodian of absentee property" to the rightwing American Jewish businessman Irving Moskowitz, patron of the ideologically driven settlers who have been allowed to do so much damage in pursuit of their historic "right" to live anywhere in the biblical land of Israel – regardless of the consequences.

But this is a one-sided demand as long as Palestinians have no parallel rights. The land of the Gush Etzion bloc of settlements in the West Bank, south of Bethlehem, was owned by Jews before 1948: that cannot be an argument for their continued presence today when it is a matter of urgency that the land be divided so that both peoples can live in their own separate independent states. Compensation for property would have to play a role in any lasting peace settlement.

Israel claims – disingenuously, given the high-stakes nature of anything to do with Jerusalem – that the Sheikh Jarrah dispute is a matter solely for the municipal authorities and domestic courts, a response intended to underline its internationally unrecognised claim to sovereignty over the entire "unified" city. Anyone who knows Jerusalem knows too that it is in reality already deeply divided and that formalising its divisions – and not necessarily by physical partition – is a necessary step to securing its future.

International anger over this issue is real. Barack Obama is the first US president to apply significant pressure to Israel over the settlements – a key component of any serious drive for meaningful peace negotiations. Unfortunately, Binyamin Netanyahu also heads the most rightwing government in the state's history (at a time when Palestinian divisions, within Fatah and between Fatah and the Islamists of Hamas, are deeper than ever).

Israel's tone was set by the call by foreign minister Avigdor Lieberman to Israeli embassies to distribute photos of Husseini with Hitler – as if the pro-Nazi and antisemitic views of a long-dead Palestinian leader are relevant to today's struggle. Some who responded to my recent article for Cif on the nakba and related issues disagreed violently. In my view, Americans for Peace Now got it just right with this statement on Sheikh Jarrah: "It is shameful that the Netanyahu government is abusing the Holocaust as part of the effort to defend this reckless project."

Israel had an easy ride over Jerusalem for far too long. That was due in large part to the Viennese charms of its late mayor Teddy Kollek, who spent years schmoozing the world to support projects (some of them laudable in themselves) that masked policies of annexation and discrimination. Palestinians living in east Jerusalem are prone to losing their ID cards or their rights of residence as part of Israel's drive for demographic dominance. Most Palestinians cannot by law buy property in (Jewish) west Jerusalem. Since 1967 Israel has expropriated 35% of east Jerusalem to construct 50,000 housing units in neighbourhoods that are intended primarily for Jews. During the same period, fewer than 600 housing units were built for Palestinian residents with government support.

In the US, pundits on the right are already proclaiming triumphantly that Obama's forward policy towards the Israeli-Palestinian conflict has failed. That may be a self-fulfilling prophecy – and there can be little doubt of Netanyahu's intentions. But the increasingly angry response over settlements from its western friends – France has been outspoken too – suggests that Israel will pay a heavy price in international reputation and perhaps isolation if Obama does fail. If the British government is already officially "appalled" at Israel's actions in Jerusalem then Israel might be wise to think a little harder about what that could mean for the future.