The land was taken after Prime Minister Ariel Sharon's government decided several months ago to enforce a long-dormant law that allows Israel to seize property belonging to Palestinians who fled or were driven out during the 1948-49 war that followed the state's creation.
The new policy, first reported in the Israeli daily Haaretz on Sunday, could affect hundreds of Palestinians who own property in Jerusalem and is sure to raise the stakes in the stormy battle over the city, which Israel and the Palestinians both claim as their capital.
The landowners affected so far live in the West Bank towns of Bethlehem and Bait Jalla, just south of Jerusalem. Their land was taken in August, after Israel's West Bank separation barrier cut them off from their property in the city.
According to documents from Israel's finance and justice ministries, the land was transferred to the "Custodian of Absentee Property", a body formed by a 1950 law that allowed the seizure of property of Palestinians who had left Israel during the 1948 war.
Landowner speaks out
Bethlehem resident Johnny Atik said on Sunday that he lost eight acres of olive groves within Jerusalem's municipal boundaries as a result of the new policy.
The land is just 100 metres away from his home, on the other side of an electronic fence and patrol road that are part of the separation barrier.
"The olives fall on the ground. We see them, but we can't get to them"
Bethlehem resident Johnny Atik, cut off from his land, 100m away
"The olives fall on the ground," he said. "We see them, but we can't get to them."
Atik said 40 families in his neighbourhood alone have had land taken. Hundreds of other Palestinians are now at risk of having land seized, said lawyers Daniel Seidemann and Muhammad Dahla, who represent several of the landowners.
Atik plans to appeal to the Supreme Court. However, Israeli legal analyst Moshe Negbi, who is often critical of Israeli moves in the West Bank, said an appeal to the court would probably fail.
"I think it would stand up to a Supreme Court appeal, because unfortunately the law allows for this," he said. "It isn't logical, because East Jerusalem was also part of the West Bank, but from the point of view of Israeli law, that's the situation."
The Israeli finance ministry's written response to questions failed to address key issues, including how much land had been taken so far and whether landowners would be compensated.
"We're talking about land that those Palestinians in Bait Jalla have owned for hundreds of years. They are not absentees ... in fact they continued to cultivate the land up until now"
Lawyer Muhammad Dahla
Israel's absentee land law was initially used in the 1950s to seize the properties of Palestinians who had fled in 1948.
At least 20,000 homes in what is today the largely Jewish area of West Jerusalem were taken under this law, said Moshe Amirav, a former member of the Jerusalem city council.
In the 1967 war, Israel captured the eastern half of Jerusalem and the West Bank from Jordan. After the war, Israel expanded Jerusalem's municipal boundaries and annexed the entire area to its capital, a move not recognised internationally.
However, successive Israeli governments decided not to apply the absentee law to the Palestinian properties that fell within the city's new boundaries, even though many of the owners lived in the West Bank.
"It was very clear from the outset ... that if this law were applied, much of the property rights throughout East Jerusalem would be forfeited," said Seidemann, Atik's attorney.
"Successive Israeli governments refrained from doing this because of its far-reaching consequences."
Only once, in the late 1980s, did then-cabinet minister Sharon try to use the law in order to transfer property in the Muslim Quarter of Jerusalem's Old City to Jewish settlers, Seidemann said.
"This opens a Pandora's box. The minute you open it, you open all the legal and moral questions of 1948"
Moshe Amirav, former Jerusalem city council member
A justice ministry committee halted the activities then, citing legal problems.
Sharon's office has declined comment, except to confirm the government's decision that the Custodian of Absentee Property has the authority to "transfer, sell or lease" East Jerusalem lands belonging to absentee owners.
The finance ministry said the properties of the Bethlehem-area landowners were already transferred to state custody after the 1967 war.
Asked what the state would do with the land, the ministry said the question was "not relevant".
Can of worms
Amirav said that once the land seizures in Jerusalem are scrutinised in court, the expropriations of Israel's early years could also be challenged.
"This opens a Pandora's box," he said. "The minute you open it, you open all the legal and moral questions of 1948."
Dahla, an attorney who represents the Bethlehem municipality and some of the Bethlehem landowners, said he believes the land seizures are part of a plan to expand Jewish neighbourhoods in eastern Jerusalem.
"We're talking about land that those Palestinians in Bait Jalla have owned for hundreds of years," Dahla said. "They are not absentees ... in fact they continued to cultivate the land up until now."