JERUSALEM, May 13 (Xinhua) -- As Israelis celebrated Jerusalem Day on Wednesday, the country's leaders outraged Palestinians by pledging that Jerusalem would remain Israel's indivisible capital.

The comments from Israeli Prime Minister Benjamin Netanyahu and several of his cabinet colleagues and MPs from his Likud party came on the eve of the commencement of indirect talks with the Palestinians, befuddling some analysts.

While the Americans are clearly unhappy with any comments or unilateral steps that will anger the other side or create facts on the ground, the State Department was relatively unfazed by Wednesday's comments -- publicly at least.

"Our position is long-standing. It's always been clear. Jerusalem is a final status issue, which is why we continue to encourage both sides to get into direct negotiations," said State Department Spokesman Philip Crowley during his daily media briefing.

BEFORE THE DAY AND AFTER

Netanyahu and Jerusalem Mayor Nir Barkat were among those whose speeches irked the Palestinians. "We will continue to build, we cannot develop in a split city," Netanyahu said in his keynote speech marking Jerusalem Day.

The occasion marks what Israelis call "the reunification of Jerusalem," after 2000 years of exile. During the 1967 War, Israel wrestled control of the eastern side of the city from the Jordanian army.

However, just five months after what has become known as the Six Day War, the United Nations Security Council unanimously approved Resolution 242. "Just and lasting peace in the Middle East should include the withdrawal of Israel armed forces from territories occupied in the recent conflict," the resolution reads.

It is on that basis that the Palestinians and the vast majority of the international community argue that Israel is occupying East Jerusalem and has no rights to that area whatsoever. That is why the Palestinians and Americans were recently incensed by the announcement of plans to build a 1,600 housing unit project in a Jewish neighborhood in eastern Jerusalem.

Meanwhile, the Palestinians want to build their future state with East Jerusalem as the capital.

The comments about the Israeli right to build throughout the city were added to by remarks made in Israel's parliament, or the Knesset, by Public Security Minister Yitzhak Aharonovitch, who said the demolitions orders of illegally constructed Palestinian homes in East Jerusalem would be issued in the next few days.

EYEING PEACE TALKS

These speeches, on the eve of the opening of peace talks, have befuddled even the most optimistic of those in the peace camp; among them, Gershon Baskin, the founder of the Israel-Palestine Center for Research and Information.

One can understand why far-right politicians make such speeches, but Netanyahu is an intelligent man. Surely he knows he will be angering both the Palestinians and the Americans with these types of words, Baskin told Xinhua on Thursday.

Dan Diker, the director of the Institute for Contemporary Affairs at the Jerusalem Center for Public Affairs think tank offers an explanation. At no point has Israel said that Jerusalem is on the negotiating table. Indeed, quite the reverse, argues Diker. Popular opinion in Israel favors the retention of the entire city as Israeli sovereign territory.

"Their view has been consistent that Jerusalem is the capital of the State of Israel, of the Jewish people. It has been under every single Israeli government (since 1967) and there's been no change in policy even from a Labor government in the past," said Diker.

Baskin reads the picture very differently. "Netanyahu has the ultimate responsibility to guide Israel into the future and that includes ultimately the most strategic relationship, which is with the United States, and secondly with our immediate neighbors," said Baskin.

"Being the primary guide to the future, Netanyahu has to be aware that Jerusalem is on the negotiating table and that at the end of the day the map of Jerusalem will be very different to what it is today," he added.

FACING REALITIES

As far as Baskin is concerned, Netanyahu appears to be oblivious to the realities on the ground. The U.S. is pressuring Israel to give up on the Arab-dominated areas of East Jerusalem at the very least. Of Jerusalem's 800,000-plus population, around a third is Arab. Israeli leftists maintain that it is in Israel's best interests to give up on controlling the Palestinians living in the city.

However, speaking on Jerusalem Day, Netanyahu returned to the city's Biblical heritage. Jerusalem is mentioned dozens of times in the New and Old Testaments, but not once in the Koran, he told lawmakers.

This led Jewish leftists and Arabs to attack Netanyahu, predominantly for ignoring the facts on the ground.

In the wake of the premier's speech, Palestinian spokesmen warned that the proximity talks may be canceled before they begin. They accused the Israeli leader of inciting against the peace process.

"Netanyahu's remarks are pretexts aimed at stealing Palestinian land and driving away its inhabitants," Yasser Abed Rabbo, a member of executive committee of the Palestine Liberation Organization (PLO), told Voice of Palestine radio.

With American envoy George Mitchell expected back in the Middle East in the next few days and Palestinian President Mahmoud Abbas slated to travel for talks in Washington, the White House fears such words could seriously damage the little progress that has been made to date.

"If the talks don't start in the next few days then American foreign policy isn't worth anything," said Baskin.

He says right now there is a litmus test in the offing. He said that within the next two weeks there will be a better idea of whether progress will be made. Baskin suggests that test can be found in any changes to security arrangements made in the West Bank.

There are suggestions that first steps might be ceasing or limiting Israeli incursions into the Palestinian-controlled areas of the West Bank and allowing Palestinian forces to deploy in more areas of the West Bank. "This will show whether the Americans can be effective at all in their Middle East policy," he said.