By Jonathan Cook – Nazareth

An ill-fated light railway under construction in Jerusalem was originally heralded by Israeli officials as a way to cement the city’s "unification" four decades after the city’s Palestinian half was illegally annexed to Israel.

But the only unity generated among Jewish and Palestinian residents after four years of disruptions to the city’s traffic and businesses is general agreement that the project is rapidly becoming a white elephant.

After engineering problems, rows between the contractors and the municipality and delays caused by archaeological discoveries along the route, completion of the first 14km section of track is not expected until the end of next year at the earliest — more than 18 months behind schedule. The budget overspend is estimated at more than $500 million.

This week, in an indication of the deepening crisis, Israel’s Dan bus company was forced to step in to buy the five per cent stake of Veolia, a French company that is supposed to operate the line for the next 30 years. Dan, which is waiting for the Israeli government to approve its bid, has no prior experience of running a rail system.

Shmuel Elgrably, a spokesman for the transit system, told the Haaretz newspaper last week that the loss of Veolia had "screwed" the project.

Veolia’s unexpected withdrawal from City Pass, a French-Israeli private consortium backed in part by public finances, is being claimed as a victory by Palestinian officials and activists whose boycott and lobbying efforts appear to have forced the company to quit the project.

They have accused Veolia and another French firm, Alstom, which is laying the tracks and providing the rail cars, of violating international law by working on a project designed to benefit Jewish settlements in the occupied part of Jerusalem.

Since East Jerusalem’s annexation, Israel has moved some 200,000 Jews into illegal colonies surrounding more than a quarter of a million Palestinian residents.

Despite pressure from Washington for a settlement freeze in East Jerusalem and the West Bank, Israel’s prime minister, Benjamin Netanyahu, declared this week: "Jerusalem is not a settlement and construction [of homes] will go on as planned."

Officials announced this month that 500 new apartments are to be built in Pisgat Zeev – a settlement of more than 40,000 Jews that will be connected to West Jerusalem in the first phase of the rail system’s construction.

The line, which is supposed to serve 150,000 passengers a day and ease congestion on Jerusalem’s roads, will also pass by the famous Damascus and Jaffa Gates of the Old City.

Future sections of track are supposed to link up other Jewish settlements, including Neve Yaacov, Atarot and Gilo.

When the transit system contract was signed in 2005, Ariel Sharon, the prime minister at the time, said it would "sustain Jerusalem for eternity as the capital of the Jewish people".

Omar Barghouti, a founder of the Palestinian Boycott, Divestment and Sanctions Movement, which has been targeting Veolia and Alstom over their involvement, wrote this month in the Jerusalem Quarterly magazine that the railway was part of "a comprehensive, long-term strategy … to cement the integration of those [settlement] blocs into an ever sprawling ‘Greater Jerusalem".

Mr Barghouti claimed that the transit system is part of a secret Israeli plan, the outlines of which were revealed by the Haaretz newspaper in May, to create large infrastructure projects to prevent the future division of Jerusalem and thereby thwart any hope of a peace agreement.

The Palestinians demand East Jerusalem as the capital of their hoped-for state.

The project’s supporters, however, point out that five of the 23 stations along the first line will be located in Palestinian neighbourhoods, including the deprived Shuafat refugee camp.

To be profitable, says City Pass, the light rail must cater to the city’s large communities of ultra-Othodox and Palestinians, both of whom are heavy users of public transport but currently use different bus routes.

Yet there are few indications that either group is keen to be brought on-board the transit system.

Palestinians are likely to be wary of using a railway dominated by settlers, and there may be severe limitations to their access to the service.

Shir Hever, a Jerusalem-based economist, said many Israeli Jews would be unwilling to share trains with the city’s Palestinian inhabitants, particularly after a series of terror attacks last summer in East Jerusalem, mostly using bulldozers.

"The real questions," he said, "are how many Palestinian areas in East Jerusalem will be left out of the loop of the rail system and, even where there are stops, what security requirements will be imposed on Palestinians, compared to Israeli Jews, before they can board the train?"

Some observers suspect that, after the first attack following the railway’s opening, it will be closed to Palestinian travellers.

The ultra-Orthodox appear equally distrustful. Their rabbis have condemned the transit system because it will encourage men and women to mingle and replace the community’s own segregated "modesty" buses. Last year, seven rabbis wrote to the municipality to complain that their followers would have to pass through secular neighbourhoods "where a God-fearing person would not set foot".

Planners too, it seems, are preparing for trouble. The 42 rail cars – each costing more than $3m — are designed to withstand stones and firebombs.

But the very survival of the project is now in question after the boycott movement’s successful lobbying. A Dutch bank, ASN, pulled its investments from Veolia in 2006, and the company lost a large contract in Sweden this year.

Alstom is also under great pressure. The Swedish national pension fund, AP7, excluded the French firm from its investment portfolio this year and activists are now seeking to force its withdrawal from a consortium awarded a $1.8billion contract in Saudi Arabia to build the Haramain Express between Mecca and Medina.

In addition, both Veolia and Alstom are battling the Palestine Liberation Organisation through the French courts over their involvement in City Pass.

The consortium’s woes have only increased with the election last year as Jerusalem mayor of Nir Barkat, a right-wing businessman who is a vocal opponent of the venture. Costs have already exceeded $1.1bn, twice the original projections, with the Israeli government sinking in $200m itself.

Earlier this year Mr Barkat threatened to terminate City Pass’ contract after the completion of the first line. He believes other routes can be served by a fleet of buses that would be five times cheaper to run.

– Jonathan Cook is a writer and journalist based in Nazareth, Israel. His latest books are "Israel and the Clash of Civilisations: Iraq, Iran and the Plan to Remake the Middle East" (Pluto Press) and "Disappearing Palestine: Israel’s Experiments in Human Despair" (Zed Books). Contact him at: www.jkcook.net. (A version of this article originally appeared in The National, www.thenational.ae, published in Abu Dhabi.)