The apparent aim of the new policy, introduced over a year ago, but implemented more forcefully since Benjamin Netanyahu became prime minister, is to increase the Jewish proportion of the population before negotiations start about the final status of Jerusalem. Palestinians in the city express more worry over their now uncertain residency rights than over construction of a new Jewish neighbourhood at Har Homa.
Palestinians taking courses abroad say they are frightened of continuing their studies in case they should lose their right to return to Jerusalem. A 24-year-old student working in Britain, who - like others whose residency is in doubt - did not want to be named, said: "I am staying at home near the Jaffa Gate in the Old City [of Jerusalem] because I don't know if I can get back in if I leave. They told me I'd only find out what visa I had when I got to the airport. Two of my sisters, who are married in Saudi Arabia, will also stay until they know if they can return here."
Yael Stein of the Israeli human rights group B'Tselem says that the Interior Ministry has introduced a new policy by using an old law designed for other purposes. She says: "It is very unfair. A Palestinian living in a suburb of Jerusalem, like E-Ram, ten minutes from the city centre, will be treated just like an American or a Briton, once resident of the city, who has moved back to their own country."
About 70,000 Palestinians with blue Jerusalem identity cards technically live on the West Bank as defined by Israel, according to Ms Stein. B'Tselem says Israel has expropriated one-third of the land in East Jerusalem since capturing it in 1967 and built 39,000 homes on it for Jews but none for Palestinians, many of whom have moved to suburbs outside the city boundaries. A further 50,000 Palestinians from Jerusalem are estimated to be working or studying in the Arab world, Europe or the United States.
Eli Suissa, the Interior Minister, a member of the religious party Shas, told the Knesset that only 600 Palestinian identity cards have been confiscated, but Ms Stein says this may be an underestimate and the ministry has refused to issue full figures. A statement by the Interior Ministry yesterday says that for Palestinians "permanent residence is a matter of `presence'. Therefore, when a person uproots the centre of his life from Israel, and establishes it elsewhere, in reality the centre of his life is no longer in Israel."
In practice this means that a Palestinian born in Jerusalem and living within sight of its shrines may find that "the centre of his life" is no longer in the city and he can no longer enter it. Many Palestinians are outside the municipal boundaries, says Meron Benvenisti, former deputy mayor and author of City of Stone: The Hidden History of Jerusalem, because in 1967 Israel annexed land from 28 Palestinian villages "leaving the populated area of the village outside [the city], but stripping it of its agricultural land and/or potential building sites".
There are estimated to be 170,000 Palestinians resident in Jerusalem out of a total population of 600,000, and the new policy could reduce this total to a rump of 50,000. Probably the government does not plan such a radical cut. But by putting the status of 120,000 Palestinians in doubt the government is making it difficult for them to lead a normal life and encouraging them to live elsewhere. Fearful of losing their identity cards Palestinians in the city have become nervous of contact with the authorities and sometimes do not even register new-born children.