JERUSALEM, Jun 21, 2010 (AFP) - Jerusalem municipality on Monday said it was moving ahead with plans to build a new archaeological park that calls for the demolition of 22 Arab homes, raising fears of unrest in the Holy City.

The city's planning and building committee approved the Gan Hamelech (King's Garden) project, the Hebrew name for the area outside Jerusalem's Old City known as Al-Bustan to its mostly Arab residents, a municipal spokesman said.

In March, Prime Minister Benjamin Netanyahu asked Jerusalem's Mayor Nir Barakat to freeze the project to avoid sparking conflict in Jerusalem and further straining ties with Washington amid a row over Jewish settlements.

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.

"The prime minister had asked for the project to be delayed to allow further dialogue with the residents," the municipal spokesman said. "That process has been completed."

Under the plan approved on Monday, 22 homes would be demolished, while 66 other buildings constructed without Israeli permission would be legalised, he said.

"Permission was given for the owners of the houses that would be destroyed to rebuild them on the other side of the area, so a solution has been found for everyone," he said.

While the plan has been approved by the committee, it still has several legal stages to go before being implemented, the spokesman said.

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.

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

The Palestinians have demanded the mostly Arab eastern part of the city as the capital of their future state.

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.

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Copyright AFP 2010.