Ramallah  - Israel is destroying the Islamic and Christian character of Jerusalem, Palestinian President Mahmoud Abbas charged, following Israeli Premier Benjamin Netanyahu's rejection of a US demand to half a proposed housing project in East Jerusalem.

"The holy city is today facing real dangers, while there are attempts to turn it into a full Jewish city by changing its Islamic and Christian landmarks," a statement published Monday by the official Wafa news agency quoted Abbas as telling Palestinians in Bethlehem.

He accused Israel of "digging under every corner in the city, which would cause a real danger to its historic and religious constructions, mainly the al-Aqsa Mosque."

And, he said, Israel's policy "of demolishing houses or confiscating them, as well as imposing heavy taxes of its Moslem and Christian residents and preventing them from building, aims at forcing them to leave the city."

Israel captured Arab East Jerusalem from Jordan in the 1967 Middle East War, and annexed it shortly afterwards, declaring the united city its "eternal, indivisible capital."

Palestinians however want East Jerusalem to be the capital of their future state, and say the Jewish neighbourhoods Israel has built there cut the city off from the rest of the West Bank.

On Sunday Israeli media reported that the US has demanded Israel not proceed with a plan to build housing units on the site of the Shepherd Hotel, in the Sheikh Jarrah neighbourhood of East Jerusalem.

The hotel had been bought in the mid-1980's by US businessman Irving Moscowitz, a supporter of Israeli settlements in the occupied territories.

Netanyahu responded to the US demand by telling his cabinet that Israel "cannot accept the idea that Jews will not have the right to live and purchase in all parts of Jerusalem."(dpa)