Israel says it is suspending the construction of a neighborhood in the Givat Ze'ev settlement north of Jerusalem, contrary to the prime minister's promise to Shas leader Eli Yishai that there would be no construction freeze in the greater Jerusalem area.

The state advised the Jerusalem District Court a few days ago that it would not approve the continued building of the Givat Ze'ev neighborhood. It cited instructions from Prime Minister Ehud Olmert and Defense Minister Ehud Barak to halt construction in West Bank settlements.

Two weeks ago, Olmert refused to authorize the completion of a new neighborhood in Ma'aleh Adumim.

The Housing Ministry and Israel Lands Administration (ILA) started marketing lots for the 600 housing units in Givat Ze'ev's Agan Ayalot neighborhood in 1999, but stopped near the end of 2000 after the eruption of the second intifada.

The contractors who had won tenders and paid tens of millions of shekels in development costs and payment guarantees sued the state for breach of contract, demanding to void the deal. But the state has refused to do so in court debates in recent years.

A few weeks ago a state representative told the Jerusalem District Court that "the state believes in the project," has invested NIS 100 million in it and has completed the infrastructure. The state therefore refuses to revoke the contracts, the representative said.

A number of contractors recently sold dozens of apartments in the Agan Ayalot project to ultra-Orthodox families. But the Housing Ministry and ILA refused to extend the land development contracts with the contractors.

Without extending the expired contracts the contractors cannot obtain building permits or bank loans to finance the building and provide buyers with guarantees.

Attorney Shlomo Gan Zvi of the Legal Forum for the Land of Israel has recently asked Attorney General Menachem Mazuz to decide which of the state's two positions reflects its stance - suspending the project or completing it.

Gan Zvi said the state's refusal to extend the contracts will lead to the project's collapse because the contractors will not be able to continue marketing the apartments.

"This project was initiated by the state, which invested a fortune in it. All its infrastructure has been completed and the state has refused for years to void the alliance with the contractors. It is absurd to let it collapse just when there's a chance to complete it, merely because of a momentary political whim," Gan Zvi said.