When the Obama administration launches indirect peace talks between the Israelis and the Palestinians, as early as this weekend, it faces a much more complicated landscape than the Clinton or Bush administrations did, especially in Jerusalem.

In the decade since Israelis and Palestinians came close to a peace deal in 2000, the complexion of Jerusalem, perhaps the most sensitive of all the sticking points, has been altered. Israeli construction is blurring lines between Arab and Jewish neighborhoods, making any bid to share or divide the city even more difficult than in the past.

A battle for sovereignty and international legitimacy is playing out on every hilltop and valley here. And with tens of thousands of new apartments planned for Jews in East Jerusalem -- well beyond the 1,600 announced in March during Vice President Biden's visit here -- the potential for construction derailing the new peace negotiations is high.

"Left unattended, within two or three years, enough will happen in Jerusalem that a two-state solution will not be possible," said Daniel Seidemann, an expert on Jerusalem who has provided informal guidance to U.S. mediators and who heads a nongovernmental organization that tracks how city planning affects peace prospects.

President Bill Clinton, at a two-week peace summit a decade ago, pitched his own ideas on how to share Jerusalem, including control of sites that are holy to Jews, Christians and Muslims. He left office recommending that Jerusalem be an undivided capital of two states, Israel and Palestine.

Now, following the recent flap with Israel over new housing in East Jerusalem, President Obama has started, perhaps inadvertently, with what Clinton found to be the toughest nut to crack.

The Israeli approval in March of construction in Ramat Shlomo, an ultra-Orthodox Jewish neighborhood, while routine in Israel's view, drew international reproach, scuttled U.S. plans to announce peace talks and led to weeks of intensive negotiations between the United States and Israel on a formula to try to avert provocative actions.

Prime Minister Binyamin Netanyahu publicly declared that construction in Jerusalem would never be frozen. But he found a tactical way to appease U.S. officials: The regional planning committee that approves major housing projects in Jerusalem did not meet for two months after the Biden visit. It convened on Tuesday for the first time since, but nothing on the agenda involved construction of Jewish housing in East Jerusalem.

Even with that temporary gesture, Israel continues with plans to house increasing numbers of Jews in East Jerusalem, in line with Israeli policy since the 1967 Middle East war to populate as much as possible the part of the city it captured and later annexed in a move not recognized by the international community.

Today, more than 11,000 housing units intended for Jews in East Jerusalem have been given final approval. An additional 9,000 or so units -- including the 1,600 in Ramat Shlomo -- are in various stages of the approval process. Private and government developers are shaping plans for 30,000 more.

For Israel, the issue of Jerusalem is about not just Jews' historical claims to the city but also demographic realities. Israelis fret about the Jewish majority of the city declining as the Arab birthrate outpaces that of Jews; by some estimates, the Arab population -- which today is about 300,000, or 35 percent of the city's total -- could equal the Jewish population by 2030.

"This is the Jewish capital of the world, and we have to maintain a solid Jewish majority in Jerusalem," said Yair Gabbay, a City Council member who sits on the district planning committee and is critical of international pressure to curb Israeli construction.

There are new territorial obstacles to establishing Palestinian sovereignty in the city and linking those areas to nearby Arab suburbs. A concrete security wall Israel built to prevent terrorist attacks cuts off Arab neighborhoods in East Jerusalem from the West Bank, the large swath of territory that is slated for a future Palestinian state. In some cases, the wall splits the neighborhoods themselves.

The Jewish settlement of Har Homa, initiated during Netanyahu's first term as prime minister in the late 1990s, today is home to 10,000 people, creating a wedge between the Arab neighborhood of Umm Tuba and the Arab town of Beit Sahour just to the south of the city.

Jewish settlers are also carving out pockets inside Jerusalem's Arab neighborhoods including Ras al-Amoud, where settlers have established Maaleh Zeitim with 50 housing units; 60 others are almost completed. In the Arab neighborhood Jabel Mukaber, the luxury high-end residential complex of Nof Zion has roughly 90 units.

Some Palestinians, amid Jewish population growth and settlement expansion in East Jerusalem, have lost hope in a future solution. Khalil Tufakji, a former Palestinian negotiator on Jerusalem, says that with close to 200,000 Jews in East Jerusalem, it is too late to divide the city. "It's over," Tufakji said of the prospect of a two-state solution. He predicts another outbreak of Israeli-Palestinian violence within two years because of growing frustration on both sides.

Shlomo Hasson, an Israeli professor of geography at Hebrew University, agrees that current demographic and building trends could mean the end of a two-state solution. "We have to separate," Hasson said. "Our interest is to have a Jewish and democratic city, and if we allow the situation as it is to continue, we are going to lose Jerusalem. We see the one-state solution before our eyes."