An Israeli government decision, taken in secret, to seize thousands of acres of land around Jerusalem from its Palestinian owners was reversed yesterday when the Attorney General, Menachem Mazuz announced that it was unlawful.

Mr Mazuz ruled that a ministerial committee which took the decision had no power to apply a 55-year-old statute to confiscate without compensation farmland in east Jerusalem cut off from its West Bank owners by the route of the separation barrier being built by the army.

The Attorney General went on to warn that the move would have "grave diplomatic repercussions" for the barrier, which has been declared illegal by the International Court of Justice because its 420-mile route cuts deep into territory on the Palestinian side of the 1967 border with Israel.

The climbdown over what had threatened to become a major embarrassment to Israel in the run-up to a visit this month by the US Secretary of State, Condoleezza Rice, to examine the prospects for political progress came after Mr Mazuz revealed that he had been kept in the dark about the decision. He also indicated that the decision would not survive scrutiny by the supreme court. The statute was devised to sanction the expropriation of land vacated by Arabs who fled their homes in what is now Israel during the war of 1948.

Human rights lawyers and activists welcomed the decision as a severe setback - though not necessarily a terminal one - for a plan they see as part of an overall strategy of maximising the Jewish presence in Arab east Jerusalem, which was annexed after the 1967 war, is not internationally recognised as part of Israel and is wanted by Palestinians as the capital of their future state.

Daniel Seidemann, an Israeli lawyer representing affected families in Bethlehem, said he was "delighted" that Mr Mazuz had proved to be a "decent and courageous public servant", but added: "Delight does not become complacency."

Raji Zaidan, the mayor of Beit Jala, one of the West Bank towns most threatened by the move, yesterday welcomed the decision as a "good sign", but added: "I can´t be sure that Israel will not use other methods to take the land. I personally think they prefer our land to peace."

Under the plan, 1,000 acres of olive groves and orchards farmed for generations by a community of some 200 mainly Christian Palestinian Beit Jala residents within the Jerusalem municipal boundary as it was expanded by Israel after the 1967 war were to have been seized. Mr Zaidan said this was land which would in the future be needed for expanding Beit Jala to accommodate natural growth, but which Israel instead wanted to expand the Jewish settlement of Gilo.

The residents will be separated from the land by the barrier when its circling of Jerusalem is complete, depending on army willingness to open a gate to gain entry.

One fear is that Israel could still apply an Ottoman law which allows state appropriation of land which has not been cultivated for three years. Nadim Hadweh, whose family own a one-acre olive grove in the affected area - as well as another partly destroyed to make way for the barrier - said they had been stopped from harvesting it in November by Israeli security forces. He said Israel had decided "this is not the right time because of peace efforts", but feared "they will tell their lawyers to find another way to take the land".

Mr Mazuz´s ruling incidentally removes one potential obstacle to political progress at a time when the fragile de facto truce is under its most severe strain since it began 10 days ago. Israel has decided to slow down its planned handover of security control in five West Bank cities to Palestinian forces following renewed violence in Gaza after the killing of a 10-year-old girl at a UN school in Rafah in what Hamas was adamant was Israeli gunfire. Five shells fired by Palestinian militants hit settlements in the Strip yesterday.

The army continued to say yesterday that the girl had been accidentally killed by Palestinians firing weapons in celebration of the annual pilgrimage to Mecca. (© 2005 Independent Digital (UK) Ltd 02/02/05)