Both Americans and Europeans went on their Christmas vacations with the feeling that in the next year, Jews in East Jerusalem would do a little less building.

As Yossi Beilin reported to his colleagues in Meretz, after serious misgivings, Netanyahu adopted U.S. Secretary of State Hillary Clinton's magic formula of the Green Line as the boundary of the future Palestinian state. That line, of course, crosses the "united capital."

U.S. Presidential envoy George Mitchell assumed from talks with adviser Yitzhak Molcho, Prime Minister Benjamin Netanyahu's envoy, that this time Netanyahu was not looking for problems, but rather for solutions.

Egyptian President Hosni Mubarak caught the American optimism. His trusted ally, intelligence chief Omar Suleiman, had reported from Jerusalem that Netanyahu's government was ripe for restarting negotiations with the Palestinians. The invitation to Netanyahu from Cairo soon followed.

Those in the know interpreted Netanyahu's courting of Kadima MKs as preparation for a coming diplomatic breakthrough. The assumption was that Netanyahu wanted to be ready for the extreme right-wing factions to bolt the coalition, perhaps along with some Likud lawmakers. Otherwise why would Netanyahu have opened himself up for criticism by expanding his cabinet even further?

Yesterday Netanyahu leaned left, today he's in the center, and tomorrow he will be the same Bibi who built Har Homa while another Clinton, former president Bill, was desperately seeking formulas to shore up the Oslo accords.

In the morning, Netanyahu accepts the evaluation of Military Intelligence experts that Mahmoud Abbas very much wants a peace agreement through direct negotiations with Israel. In the evening, National Security Adviser Uzi Arad persuades the prime minister that dealing with Abbas is a waste of time.

Arad says Ramallah has given up on an agreement with Israel in favor of international support and recognition of an independent Palestinian state.

Jerusalem is once again Netanyahu's city of refuge. A tender for the construction of hundreds of apartments in the Jewish neighborhoods in East Jerusalem is a recipe for trumping any diplomatic move and any opposition from the left. When the Jews upset the status quo in Jerusalem, the Arabs cannot pretend that it's business as usual. And opposition leader MK Tzipi Livni would not dare speak against construction in "our" Pisgat Ze'ev.

Meanwhile the government announced the construction of hundreds of apartments for Arabs in Silwan, south of the Old City. Jerusalem Mayor Nir Barkat thought up this embryonic plan to save "Beit Yehonatan" a seven-story building that the right-wing association Ateret Kohanim owns in the heart of this Arab neighborhood.

Jerusalem's legal adviser, Yossi Havilio, backed by the State Prosecutor's Office, has demanded that Barkat comply with a long-standing court order to seal the house.

Instead, Barkat announced the construction of a four-story building nearby. Assuming all the authorizations go through, building will start in five years.

So what do the Palestinians and the Americans have to complain about?