Israeli police officers evicted a Palestinian family from their home in a predominantly Arab neighborhood of East Jerusalem on Tuesday morning, and a group of Jewish settlers moved into the property at night.

The episode struck one of the more sensitive nerves in the Israeli-Palestinian relationship at a time of increasing tension and as the Obama administration is working to restart stalled peace negotiations. Such evictions have drawn international condemnation in the past.

The Palestinian family, the Karains, lost a legal battle for ownership of the house. They said it had been sold to settlers illegally and without their knowledge by a relative, Ali Karain, who was a part-owner of the house, and who has since died.

The Israeli courts upheld the sale about six months ago.

After the eviction, family members milled about in the street and on a neighboring rooftop, while Israelis protected by armed police officers went about installing security cameras and sealing the windows and balconies of the building with boards and wire mesh.

“My uncle died almost two years ago,” said Fadi Karain, 21, who is studying to be a teacher at an Israeli college in predominantly Jewish West Jerusalem. “A month after he died, we heard from the bailiffs that the house had been sold.” He said that the new owners were associated with Elad, a group that promotes Jewish settlement in Arab areas of Jerusalem, and particularly in Silwan.

The settler takeover of the Karain house will represent a new point of Jewish settlement in this contested city. The three-story stone building is wedged among other houses on a steep slope in the Farouk section of the Jebel Mukaber neighborhood, with a panoramic view of the Old City, the Aksa Mosque and the golden Dome of the Rock. Those shrines sit atop the plateau revered by Muslims as the Noble Sanctuary, and by Jews as the Temple Mount.

A stone slab set into the wall of the house is engraved with an image of the Dome of the Rock and the words “Al mulk lillah,” Arabic for “Everything belongs to God.”

A Jewish volunteer who was helping to prepare the house for its new inhabitants said he was acting out of “Zionism.” Israelis have the right to live and buy property anywhere in Jerusalem, Israel’s capital, he said.

The issue of Israeli construction in Jewish sections of East Jerusalem has been a source of tension in recent months between Israel, the Palestinians and the United States. Jewish settlers are increasingly moving into predominantly Arab neighborhoods, deepening confusion about the future shape of the city.

Israel annexed East Jerusalem shortly after capturing it and the West Bank from Jordan in the 1967 war. The annexation was never internationally recognized, and the Palestinians claim the territory as the capital of a future independent state. But many Israelis maintain that Jerusalem belongs entirely to Israel.

Prime Minister Benjamin Netanyahu recently had a sharp exchange with the Obama administration in which his office released a statement defending Jewish construction in Jerusalem, saying, “Jerusalem is not a settlement; Jerusalem is the capital of the State of Israel.”

In recent years, settlers have evicted Palestinians and taken over several houses in Sheikh Jarrah, a coveted area near the Old City, after the Israeli courts, including the Supreme Court, upheld rulings from the 1970s that the properties had originally belonged to Jews.

Activists of the Sheikh Jarrah Solidarity group were in Jebel Mukaber on Tuesday, helping the Karain family remove boxes of food and some last belongings from the house.

The group issued a statement saying that the objective of the new settlement was “without doubt to undercut the rationale of the 2000 Clinton Proposal, namely the division of Jerusalem into two capitals,” referring to an idea put forward by President Bill Clinton.

On the upper edge of Jebel Mukaber, dozens of Jewish families now live in a private Jewish development, Nof Zion, built on land that was purchased by an Israeli developer.

Udi Ragones, a spokesman for Elad, said the Karain home was purchased a few years ago by a foreign-registered company called Lowell.

Mr. Ragones did not acknowledge any direct Elad role in buying the property, but he said that there had been contacts between the group and the purchasers.

But groups like Elad, also known as the City of David, are known to use foreign-registered straw companies to buy properties in East Jerusalem. They say that they have to work discreetly in order to protect the Palestinian sellers whose lives are threatened by other Palestinians who oppose such deals.