Construction in the east Jerusalem neighborhood of Sheikh Jarrah began Sunday, just a few days before Prime Minister Benjamin Netanyahu was scheduled to meet with the US president.
The controversial construction plans, set at the site of the Shepherd Hotel, surfaced on the eve of Netanyahu's previous meeting with Barack Obama three months ago, embarrassing the Israeli government.
Channel 10 reported Sunday that bulldozers had already arrived at the site, intended for 20 new Jewish homes.
Netanyahu has much to account for during his meeting with Obama, with Jerusalem Mayor Nir Barkat's controversial 'King's Garden' plan in Silwan. The plan orders the razing of 22 Arab homes.
A number of officials, including Defense Minister Ehud Barak, have claimed the Sheikh Jarrah and Silwan construction plans were purposefully promoted at sensitive times by extreme rightists hoping to embarrass the prime minister.
Peace Now said in a statement, "The mayor of Jerusalem and his partners in the right wing continue to decide the facts on the ground and harm Israel's political status. Netanyahu must order Barkat to stop the construction in Sheikh Jarrah immediately."
The Jerusalem Municipality said in response, "Just like any other municipality in Israel, Jerusalem Municipality hands out building permits in the entire city based on their compliance with professional criteria only, and without checking religion, race, or sex, which is against the law. If a private entrepreneur files a construction plan that complies with the professional criteria required, the municipality is obligated to approve it regardless of his religion."
The municipality added that the plan had been approved in 2009, and the permit issued in March. "The municipality approves the plans of dozens of entrepreneurs, Jewish and Arab, each week, to build on the private lands they have purchased. Any attempt at presenting this as a provocation comes from ignorance of construction and legal procedures."