It lies outside the recognised Jerusalem boundary. Israel quickly altered the boundary in 1967 to try to swipe additional land, but unfortunately an occupying power cannot do that. Nor can it annex land unilaterally without the agreement of the Palestinian civil authority. Nor can it settle its people on occupied territory, whether on public, private, purchsed or any other land. Honest, it's all set out in the UN Charter and Geneva Convention 4. So it is illegally acquired real estate and Israel is breaking a clutch of international laws. The courts don't buy biblical excuses or recognise God as a realtor, so that 'ancestral rights' story is dead on arrival.
from the article: EU, Obama: Settlement construction could threaten peace progress