A wealthy Palestinian-American businessman is fighting to take over a troubled real estate firm that builds Jewish-only housing units in Arab-dominated East Jerusalem, but right-wing Jewish groups have vowed to kill the deal.

Bashar Masri, a West Bank native who holds American citizenship, has offered to buy debt-burdened Digal Investment and Holdings Ltd., which has been building the 400-unit Nof Zion housing project overlooking the Old City.

Bondholders of the struggling company met late Sunday night to discuss Masri's bid as well as a competing one, but no decision was announced. Attorneys for the bondholders did not return phone calls.

If successful, Masri said, he plans to sell the remaining 300-plus units to Palestinian buyers. To date, Digal has completed the first phase of the project, and sold the units only to Jewish buyers, including many religious families.

The takeover would mark a rare instance of a Palestinian entrepreneur winning control of a housing project that had been targeted at Jewish buyers in East Jerusalem. In most cases, Jewish developers have been buying property in Arab neighborhoods to establish a Jewish presence, despite criticism from Palestinian and international groups who say such provocative construction hinders Mideast peace talks.

In one example, bulldozers in East Jerusalem on Sunday tore down the vacant old Shepherd Hotel, clearing the way for construction of 20 Jewish housing units. Speaking in Abu Dhabi, United Arab Emirates, U.S. Secretary of State Hillary Rodham Clinton condemned the demolition as a "disturbing development" that undermines efforts to establish a separate Palestinian state and "contradicts the logic of a reasonable and necessary agreement between the parties on the status of Jerusalem."

Masri said his purchase offer was accepted by the committee of bondholders a month ago.

But when word of the pending deal was made public, conservative Israeli groups and some Nof Zion residents rallied to block it. They accused Masri of attempting to conceal his identity by using Israeli go-betweens and a Cyprus-based company.

One resident called the deal an "act of betrayal by facilitating a secretive transaction that would lead to the sale of Nof Zion property to Arab interests," according to one angry letter published in an Israeli newspaper.

The campaign has included picketing bondholder meetings, text-message threats to parties involved in the deal, advertisements and posters. Some opponents have labeled Masri a "terrorist" because of his past involvement with Palestinian politics.

Masri, who said he has never hidden the fact that he is Palestinian, said the deal appears to be in limbo. When he attempted to pay his deposit, he said, the money was rejected.

"The long delay does not look good," said Masri, who was born and raised in the northern West Bank city of Nablus and currently resides in Washington, D.C. "This means the bondholders are waiting for an Israeli to come up with a better bid."

Bondholders voted last week to open negotiations with another buyer — led by an Israeli supermarket-chain magnate — though some on the committee remain interested in selling to Masri, according to a report in Haaretz newspaper.

Masri called the opposition campaign against him "racist" and said that it would reflect poorly on Israel's business image.

"I am an American businessman trying to make a purely business deal," said Masri, who has several large investments in Palestinian companies in the West Bank.

In the Rawabi project, a master-planned community outside Ramallah, Masri has drawn criticism from Israelis for insisting upon hiring only Palestinian contractors whenever possible.

When Digal ran into financial trouble with its lenders, including Bank Leumi, its bondholders began looking for a buyer for the company assets, which include plans for a hotel next to the homes.

Masri said his $36-million bid was the highest, with more than half of the money going to cover debt to Bank Leumi and the rest to the bondholders.

He said his Cyprus-based Techsal Co. first expressed interest in buying Digal two years ago.

"This was an authorized housing project being built on land which was owned by Palestinians and falls in an East Jerusalem neighborhood," he said. "Since there is a serious shortage of housing for Palestinians in East Jerusalem because it is difficult for Palestinians to get building permits, I saw in buying this project an opportunity to get authorized housing for the Palestinians."