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The Hilton Hotel chain along with the Canadian Reichman brothers' IPC Jerusalem will open a new hotel in Jerusalem under the Waldorf-Astoria brand name, the first in Israel. The two firms announced their management agreement to run the hotel, which is scheduled to open toward the end of 2010, at the end of last week.

The new hotel will be in the building where the Palace Hotel once stood at the intersection of King David, Agron and Mamilla Streets in the heart of Jerusalem, a short distance from the Old City and near the King David and The David Citadel.

The firms will invest an estimated $100 million in building and renovations. Other luxury hotel chains were interested in managing the property, including Intercontinental.

Wolfgang Neumann, the president of Hilton Hotels Europe, said that "Israel is enjoying continued rapid and robust commercial activity, which is fueling a strong demand for high-quality hotel brands. We are very pleased to be working with IPC Jerusalem Ltd. to introduce what will be a magnificent hotel and a superb addition to the Waldorf-Astoria Collection."

Hilton already operates the Tel Aviv Hilton and the Queen of Sheba in Eilat. The new Jerusalem hotel will be in an historic but controversial site. The Palace was built in the late 1920s by the Supreme Muslim Council headed by the mufti of Jerusalem, Haj Amin al-Husseini, as a symbol and an Arab competitor to the Jewish-owned luxury hotels like the King David. It was also partially built on the remains of a Muslim cemetery. In the mid-1930s it was leased to the British authorities, and later served to house the Ministry of Industry and Trade.

The magnificent building boats Middle Eastern decorative arches and intricate stone carvings. The interior will be completely refurbished and another five floors will be added. It will have three restaurants, a pool, a spa and other facilities. The Waldorf-Astoria Collection brand runs only five hotels, four in the U.S., including the flagship in Manhattan, and the fifth is the Palace of the Orient in Jeddah, Saudi Arabia.

IPC Jerusalem was created in 2005 specifically to buy the development rights to the Palace, as well as the neighboring Customs House.