A Dutch bank has decided to divest itself of its holdings in a French company that is participating in building Jerusalem's light rail system, on the grounds that the project "is not in line with the United Nation's demand to stop all support for Israel's settlement activities."

Work recently began on the railway's first line, which will run from Neveh Ya'akov to Mount Herzl, passing through parts of the city that Israel annexed in 1967 on its way.

ASN, the Dutch bank, holds shares in the French firm, Veolia, whose subsidiary Connex Israel holds about 5 percent of the CityPass consortium. CityPass won the NIS 2 billion tender to build the line.

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ASN is a medium-sized bank, with 250,000 customers, deposits totaling two billion euros and investments totaling 900 million euros in 2005. It also considers itself an "ethical bank," and is therefore committed to investing only in projects that do not infringe on human or animal rights or harm the environment.

In May 2006, human rights organizations wrote to ASN claiming that Veolia's work on the light rail project violated international law, because part of the railway will pass through "occupied territory" in East Jerusalem. The Palestinian Authority also wrote to ASN, claiming that the railway's construction would have "devastating effects" on Palestinians living in East Jerusalem, as it would connect the "illegal settlements" of Pisgat Ze'ev and Neveh Ya'akov (two Jerusalem neighborhoods) with downtown Jerusalem, and thereby sever East Jerusalem from the West Bank.

Both the bank and the human rights groups therefore urged Veolia to end its involvement in the project, and the organizations claim that PA Chairman Mahmoud Abbas also raised the matter with French President Jacques Chirac. Veolia replied that it is looking into the matter, "but meanwhile, ASN Bank's criteria are not met by that answer," the bank said. As a result, it decided last week to sell its shares in Veolia.

Bank officials told Haaretz that UN resolutions on Jerusalem were the reason for this decision.

The human rights groups are now urging the bank to divest from an Irish construction company that has partnered with an Israeli firm to make concrete used in building the separation fence. ASN told Haaretz it is examining all investments involving Israel and the territories, "as we do for every other region in the world continuously."

Micha Avisar, CEO of Connex Israel, said he could neither confirm nor deny the report. The Light Rail Administration, which is jointly run by the Transportation Ministry and the Jerusalem Municipality, said that this was an internal CityPass affair, but stressed the project is meant to serve all the city's residents, Jewish and Arab alike.