Independent on Sunday At 7.30 in the morning two weeks ago Khalid Kurd Rashid, a jeweller in the Old City of Jerusalem, received a phone call to say that a house his family owned was being taken over by Jewish settlers.

When he arrived at the building it was too late. "We found the locks were smashed and there were armed guards in the house. We told the police this was our property, but they would not help. I was so angry I said there would be bloodshed." When one ofhis family tried to force his way into the building, he was hit by one of the guards the settlers had brought.

By now Mr Rashid had a very good idea who had taken over the house. Some years before, his family had been contacted, through middlemen, by an organisation much feared by Palestinians in Jerusalem. Known as Ateret Cohanim - the Crown of the Priests - itis dedicated to replacing Palestinians with Jews throughout the historic city. The Rashid family said they did not want to sell.

Backed by right-wing American Jewish millionaires and Israeli government money illegally siphoned off during the 1980s, according to a government inquiry, Ateret Cohanim has moved 600 settlers into the Muslim quarter of the Old City of Jerusalem. Thehouses they have taken over are easily visible, because blue and white Israeli flags fly from the barred windows and tough-looking guards, subsidised by the government, stand outside with sub-machine guns.

During the previous Labour government Ateret Cohanim was outwardly quiescent. But since Benjamin Netanyahu and the right won the election in May, it has restarted its takeover campaign. One house in Silwan, just below Temple Mount on the site of thehistoric City of David, was occupied by settlers on the very morning of the election, even before Mr Netanyahu was declared the official winner.

To the outside world the opening of the tunnel under the Old City may have appeared to be a single, if provocative, event which led to the violence in which 58 Palestinians and 15 Israelis died. But for the 25,000 Palestinians in the Old City ofJerusalem, ringed by its Ottoman walls, the tunnel was only one element in a three-pronged effort to replace them by Jews which has gathered force since Mr Netanyahu and his right-wing government were elected. The other elements in the offensive, partgovernment, part private, are the takeover or demolition of houses owned by Palestinians.

The occupation of the Rashid house, opposite the American Consulate on the Nablus Road in an historic part of the city, is not an isolated event. Arye Amit, the police chief of Jerusalem, says: "It is the beginning of the property war in East Jerusalem.There are many other buildings, I won't say how many, that have been purchased [by settlers], or are in the process of being purchased."

Demolition of Palestinian-owned buildings has also increased, mainly at the initiative of the mayor of Jerusalem, Ehud Olmert, who seizes on legal technicalities wherever possible. A community centre and club for disabled children was knocked down nearHerod's Gate in late August. At the meeting on 16 September which decided to open the tunnel, Mr Olmert raised the question of demolishing a house in Maronite Convent Street, on the edge of the Armenian quarter. The top storey has been deemed to havebeen built without a permit - which Palestinians say they are systematically refused - and has been destroyed.

It is not merely that those responsible for the opening of the tunnel share a common ideological purpose with those taking over and demolishing Arab houses in Jerusalem. Often the same people are involved, according to Danny Seidman, a lawyer for IrShalem, a group which monitors takeovers in Jerusalem. The group in charge of the tunnel - the Kotel Heritage Foundation - is closely linked to Ateret Cohanim, he says. "There is a confluence in terms of ideology, organisation and personnel between thetwo."

All this was denied at great length by Benjamin Netanyahu at the end of last week's summit in Washington. Of the opening of the gate into the Via Dolorosa: "We knocked down a wall 20cm [8in] thick. That's all we did. We opened a gate to an existingarchaeological dig that had been completed years ago." He said the media was stirring up hatred by portraying Israel as the enemy of Islam, and repeating charges that the tunnel undermines the mosques and shrines on the great masonry platform known toMuslims as the Haram esh-Sharif and Jews as Temple Mount.

This was disingenuous. In practice the tunnel extends the Wailing Wall, the main Jewish religious site to the north, into the Muslim quarter of the city. Its religious significance was underlined by the fact that it was paid for by the Ministry ofReligious Affairs. The southern end of the tunnel is used by ultra-orthodox Jews who want to pray without the polluting presence of women at the Wailing Wall, and skullcaps are distributed to visitors.

There is a further effect of opening a gate into the Via Dolorosa. The heavy security presence to protect visitors means that there is a line of Israeli police blocking the street. They are backed by plainclothes security men sitting on a grey metalbench, and Palestinians who live in the neighbourhood are questioned when they go to their homes. They are already hampered by the presence 200 yards away of Israeli soldiers guarding a house belonging to Ariel Sharon, the Infrastructure Minister, whichwas taken over in 1987. It is increasingly difficult for them to live a normal life in the district.

One of those who attended the opening of the tunnel and is also heavily involved in Ateret Cohanim was Irving Moskowitz, a multi-millionaire from south Florida who owns hospitals and a bingo parlour in California. For years he has funded the takeover ofPalestinian buildings, giving $1m (pounds 650,000) to buy Shepherd's Hotel in East Jerusalem in 1985 because, he told the Washington Post, he wanted "to do everything I possibly can to help reclaim Jerusalem for the Jewish people".

Most of the funds used by Ateret Cohanim came from the last Likud government before it lost power in 1992. Citing the government's Klugman report of 1992, Danny Seidman said: "There is upwards of $10m still missing." But Dr Moskovitz, who is a vocalopponent of the Oslo accords with the Palestinians, has also given Ateret Cohanim $2.35m. Investigation by Mr Rashid's lawyer last week revealed that the millionaire had paid for part of the building in Nablus road which was not owned by the Rashidfamily.

He is also reported to have played a critical role in getting the tunnel opened. The Miami Herald said last week that Mr Netanyahu, though initially hesitant, opened the gateway "to reward Moskowitz and other American benefactors", but this may be anoversimplification.

Mr Olmert, the mayor, faces a political corruption trial for allegedly providing Likud party contributors in the 1988 general election with phony receipts to be used for tax purposes. Political observers believe that his vigorous campaign of demolitionsand his personal participation in opening the tunnel are an attempt to divert attention from his legal troubles. But his excavation may have made things worse. The Israeli press has discovered that, while eager to demolish Palestinian houses on legaltechnicalities, he has allegedly broken the law by failing to get planning permission for his tunnel excavation.

The previous Likud administration covertly gave funds to Ateret Cohanim to achieve its aim of ousting Palestinians from the Old City of Jerusalem and neighbouring historic districts like the Mount of Olives and the City of David (Silwan), and thisfunding is believed to have been resumed by the new government.

Against heavy Palestinian resistance, the takeover of the Old City will take a long time. But the very attempt has created great bitterness. "The city is a mosaic of communities," says Danny Seidman. "If takeovers continue, Jerusalem will become likeHebron, with no possibility of coexistence between Israelis and Palestinians."

Patrick Cockburn, Taking Jerusalem by stealth. , Independent on Sunday, 10-06-1996, pp 12.