Mixed Arab-Jewish ´sleeping beauty´ city awakes to gentrification and influx of nationalist-religious Jews

Amid narrow winding alleys, crumbling courtyards and dark doorways of neglected buildings, a work of art gleams within the walls of Israel´s ancient but dilapidated city of Acre. The Efendi Palace hotel opened in March after eight-and-a-half years of painstaking restoration.

A team of experts was brought from Venice to work on Ottoman-era wall and ceiling paintings; stone walls dating from the Byzantine and Crusader eras have been carefully preserved in what is now the wine cellar; a 400-year-old Turkish bath has been restored. Light floods through the windows, from which there are views across the rooftops and ramparts of the historic old city to the Mediterranean.

The Jewish owner is Uri Jeremias, known to everybody in Acre as Uri Buri after his eponymous avant garde seafood restaurant five minutes´ walk from the Efendi Palace, and instantly recognisable from his magnificent long grey beard.

Describing the old city as "a sleeping beauty", he says the restoration was "an investment of the soul" as well as a huge, but unspecified, amount of money. The Efendi Palace is a symbol of Acre´s potential as a magnet for wealthy tourists and investors.

It has also become emblematic of growing tensions between the Arab and Jewish populations of one of Israel´s few mixed cities. Arabs, who make up 28% of Acre´s population but 100% of the old city, fear that a programme of gentrification funded by Jewish investors will – either by design or simply as a consequence – drive them out.

The hotel, whose 12 rooms range in price from $300 (£191) to more than $800 (£510) a night, is a nugget of luxury amid the decrepit homes of impoverished Arab residents. For now it is unique, but not for much longer: the Old Acre Development Company, a subsidiary of the Israeli tourism ministry, is marketing many of the old city´s historic buildings for development as luxury hotels, restaurants, boutique shops and exclusive apartment complexes. The magnificent arched Khan el-Umdan, where weeds sprout from cracks in the 40 stone pillars, is being offered for immediate development alongside its neighbour, the Khan a-Shuna, as a 170-room hotel and commercial space. The two khans, says the development company, are the most important buildings in the old city, which was declared a World Heritage Site by Unesco in 2001.

It describes another, el- Shawarda, as one of the oldest and most elegant khans, constituting part of the sea wall. It is earmarked for a 60-room hotel and commercial complex.

According to Arab activists in Acre, this is part of a grand plan, driven by the city´s Jewish mayor, to gentrify and rebrand the old city – and persuade, induce or coerce Arabs to leave. But they also say there is a wider context that reaches beyond the walls of the old city into the newer neighbourhoods of Acre. In recent years there has been an influx of nationalist-religious Jews, associated with the hardline West Bank settler movement, seeking to "reclaim" mixed cities such as Acre and prevent their Arab populations becoming a majority.

In the new city of Acre, housing developments reserved exclusively for religious Jews have alarmed Arab residents. "More and more extreme people from settlements are targeting the Arab community [in Israel]," says Ja´far Farah of Mossawa, a civil rights organisation. "The settlers want to prove that the conflict is not just about the [West Bank] but all of Israel. They are targeting mixed cities in an attempt to prove there is no future for coexistence."

It is "a very tense city", says local activist Sami Hawari. The edginess boiled over into violent clashes between the two communities three years ago, the underlying causes of which have not been resolved. "When Jewish leaders call the muezzin [the Muslim call to prayer] ´environmental pollution´, and when they consider us a demographic threat even though they are more than 70% of the population, when the mayor constantly declares Acre a ´Jewish city´, it adds tension to the lives of people."

The mayor, Shimon Lankry, says these are "ridiculous accusations, only voiced by extremists". He points out that not a single Jewish family has moved into the old city, and says that "in spite of the fact that there is not a great love between the two communities, we walk the same streets, shop in the same supermarkets and live in the same apartment buildings. We want to keep the old city as a historical site with its original population living in it, but we want to develop businesses, hotels and restaurants."

Ahmed Odeh, an Arab member of the city council, claims that about 50 properties in the old city have been acquired by Jewish investors for redevelopment. He says a number of ruses have been employed to encourage Arab residents to give up their properties – whose ownership was taken by the Israeli state after the 1948 war – to developers. These include straightforward cash offers, often irresistible to poor families; orders for expensive repairs; and eviction if debts are defaulted on.

Uri Buri – who has no connection to the nationalist-religious groups – says the purchase of the properties which became the Efendi Palace is above-board and fully documented. He declines to say how much he paid, but says that he was the only person to place an offer during the tender process. "My conscience is clear. I´m not doing anything to harm anyone and I obey the law. I´m not saying everything is honey, but [the Arabs] shouldn´t fight people coming to help and develop Acre."

His investments have brought benefits for the local population, he says. Affluent tourists spend money in the souks of the old city. His hotel, restaurant and an ice cream shop employs around two dozen Arabs alongside a similar number of Jewish workers.

"This doesn´t have anything to do with Arabs and Jews," he says. "This is a poor area and when it´s developed the poor people are pushed out and the rich people move in. This is how it works everywhere in the world." He cites Canary Wharf in London as an example.

"Since my childhood I´ve said Acre is a miracle. I´ve travelled a lot and I´ve seen very few cities with such undeveloped potential. But I don´t see any Arabs coming to invest."

Not on the scale of the Efendi Palace, perhaps, but one local Arab investor is Reem Hazzan, who opened Beit Maha, a restaurant and bar, in her family´s waterfront property seven months ago. "We opened this place because we believe investors should be local," she said. "This may be one of the last old cities in the world which is not a tourist centre."

She rejects Uri Buri´s assertion that the tension is only about rich and poor. "Yes, it is a class issue, but it´s also about Arabs and Jews. When the investors are Jews, and when the poor people are Arabs, you can´t ignore that. We need investors who believe in the potential of local people, and who will invest in a socially responsible way. If you take the people out of the old city, it will lose its soul." (guardian.co.uk © Guardian News and Media Limited 2012 06/25/12)