Bondholders of a troubled Israeli real estate company that is building Jewish housing in Arab-dominated East Jerusalem have rejected an offer from a Palestinian American entrepreneur to buy the firm, officials said Wednesday.

Bashar Masri, a wealthy West Bank-born businessman, said in a telephone interview that he was disappointed at the decision of bondholders to instead accept a last-minute bid from an Israeli tycoon.

Sources familiar with the deal said Wednesday that bondholders of Digal Investments & Holdings Ltd. had voted over the preceding three days to accept an unspecified offer from Israeli supermarket-chain magnate Rami Levy after pressure from right-wing Jewish groups that opposed Masri's $36-million bid.

An attorney for bondholders declined to comment Wednesday.

Digal had built about 90 of 400 planned Jewish-only housing units on a plot of land in East Jerusalem but ran into debt problems with its lenders due to sluggish sales.

Masri said he wanted to buy the Nof Zion project to sell the remaining 300-plus units to Palestinians "who face serious housing shortage due to discriminatory Israeli policies."

But when news of the deal became public, right-wing groups and some residents of Digal's project voiced opposition to Masri's bid, mobilizing supporters to torpedo the sale and find an Israeli buyer. Some bought stakes in the troubled company to influence its bondholders' decision.

The bondholders' vote "sends the wrong message that if you are of Arab background you will be treated differently from someone with an Israeli background," Masri said. "It is not good for your business if you claim to be a free-market economy."

Masri's Cyprus-based Techsal Trading Co. made the bid of $36 million to buy all Digal stakes and half of another company building a hotel in the same project.

Masri said he will "turn the page" and hopes to build other housing projects for Palestinians.