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Plans to build two new residential neighborhoods for Jews in East Jerusalem were put on hold last week on the instructions of the legal adviser to the Jerusalem municipality, Haaretz has learned.

The adviser, Yossi Havilio, wrote to Deputy Mayor Yosef (Pepe) Alalo last week informing him that he had instructed the architectural firm involved in the project to suspend planning, given the neighborhoods' sensitive location and the wider repercussions that construction there could bring.

Havilio wrote that to avoid suspicions of a conflict of interest, the architectural firm run by Eli Reches - a partner of city engineer Shlomo Eshkol until 2007 - must no longer be involved in the plan.

Havilio has also begun to reconsider the approval granted to Reches' office to plan a new residential project in the Ramat Shlomo neighborhood, the announcement of which led Israel into a diplomatic row with the United States earlier this month.

Last week Haaretz reported that the Interior Ministry's Jerusalem district planning committee voted in June 2008 to decline the request to zone the area for residential buildings. Eshkol was absent from that meeting in an effort to avoid appearances of a conflict of interest, but when informed of the decision, angrily ordered municipal officials and the supervisor of the city's master plan to leave the room.

At a meeting two weeks ago, the committee changed its earlier decision and adopted the recommendation of the city engineer's office to change the area's zoning from that of a green space (as laid out in the master plan) to a residential area.

Eshkol's contract with the municipality stated that "In any instance in which the planning committee, and/or the legal adviser to the municipality, believes the plan has broad implications - and the city engineer cannot be left out of setting a position - Reches' firm will not be involved with the program."

The Jerusalem municipality said in response that since entering office, Eshkol was not involved in any meetings or consultations on the Ramat Shlomo plan.