Bondholders of Digal Investments and Holdings have decided they would rather sell control of the Nof Zion neighborhood to a group of Jewish investors from Israel and Australia and rejected a proposal by a group of US investors headed by Palestinian businessman Bashar Masri.
This means that construction in the Jewish neighborhood, which is at the heart of Jabel Mukaber, will continue.
The decision is subject to the approval of Digal's primary creditor Bank Leumi.
However, even if the bank approves the decision and the deal goes through, the bondholders will get back only 60% of the debt the company owes them, whereas Masri's proposal would have provided them with the full sum. Still, the bondholders chose to sell to the Jewish investors.
Digal built a Jewish neighborhood at the heart of Palestinian Jabel Mukaber in southeast Jerusalem. Some of the houses have already been sold whereas the hundreds more are facing delays as the company found itself in a financial bind. It owes banks and bondholders some NIS 240 million.
Over the weekend Masri presented the bondholders with an ultimatum requiring them to respond to his proposal within 24 hours. They were faced with the dilemma of whether to allow Nof Zion to grow as a Jewish neighborhood or halt its construction.
It is estimated that had Masri's proposal been accepted he would have frozen Jewish construction and might have built housing units for Palestinians instead. His involvement sparked outrage among the neighborhood residents and right-wing activists in Jerusalem who went as far as securing an alternative bid by a Jewish investor.
Digal's primary creditor is Bank Leumi. This week, the bank's Facebook's page was flooded with messages calling it not to allow the Masri deal to go through. One of the claims made against him was that he told Palestinian press he aims to solidify Palestinian presence in "occupied" Jerusalem. He was also accused of being a former Fatah member, which he has not denied.
Elizaphan Rosenberg and Ronen Medzini contributed to this report