JERUSALEM, Mar 02, 2010 (AFP) - The Israeli mayor of Jerusalem on Tuesday was to announce the building of a new archaeological park that could require the demolition of dozens of Arab homes and fuel unrest in the Holy City.

Mayor Nir Barkat's office, in a statement, said the afternoon announcement would concern a project in the King's Garden, the Hebrew name for the area outside the Old City known as Al-Bustan to its mostly Arab residents.

The area is part of the so-called Holy Basin, believed to be the site of ancient Jerusalem during the time of the biblical kings David and Solomon.

Now it is a crowded Arab neighbourhood in a part of the city occupied by Israel in the 1967 Middle East war and annexed in a move not recognised internationally.

If the project goes ahead it could fuel further outrage following clashes in Jerusalem earlier this week between Palestinians and Israeli police in and around the flashpoint Al-Aqsa mosque compound, revered by Jews and Muslims.

Israeli media reported that the plan calls for the destruction of dozens of houses built without Israeli permits, some of which are decades old, and for their owners to be compensated with businesses inside the new park.

The project was also expected to legalise a seven-storey building constructed by Jewish settlers without a permit in 2004 in the same neighbourhood. An Israeli court sealed the building last month.

At the time Barkat protested the order to seal the building, saying it would require him to carry out some 200 demolition orders in the same neighbourhood.

"Law enforcement activity in Jerusalem, especially in its east, could be highly explosive," Barkat told the court, referring to the demolition of Palestinian homes in east Jerusalem in the past that has led to clashes.

Many Palestinians in east Jerusalem risk having their homes razed because they were built or expanded without the necessary permits which are nearly impossible to obtain from the Israeli authorities.

Several Western countries including the United States, have urged Israel to refrain from such demolitions, to avoid further harming the already hobbled Middle East peace process.

Israel captured east Jerusalem with the rest of the West Bank in 1967 and annexed it. The Palestinians have demanded the mostly Arab eastern part of the city as the capital of their future state.

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Copyright AFP 2010.