The man who sold Jerusalem

The secret sale of a priceless plot of land in the Holy City has threatened the fragile balance between the religions. Donald Macintyre reports on the Greek Orthodox priest accused of selling out his Palestinian flock for Israeli gold

These are tense times for Abu Walid Dijani, proprietor of the New Imperial Hotel. The Arab hotel, one of the oldest in Jerusalem despite its name, has been at the centre of the city's turbulent history many times, thanks to its strategic location just inside the Jaffa Gate,.

These are tense times for Abu Walid Dijani, proprietor of the New Imperial Hotel. The Arab hotel, one of the oldest in Jerusalem despite its name, has been at the centre of the city's turbulent history many times, thanks to its strategic location just inside the Jaffa Gate,.

From a balcony here in December 1917, General Edmund Allenby looked across Omar Ibn al Khattab square after dismounting his horse outside the walls and entering the Old City on foot to mark its liberation from the Turks.

In the 1950s and 1960s, the hotel housed a small cinema, and its elegant ballroom was a favourite Palestinian wedding venue. In 1967, during the Six-Day War, it was occupied and used as a base by Israeli troops, then returned to the Dijani family, the tenants of the property, which is owned by the Greek Orthodox Church. But during more than a century the old hotel has never faced a greater threat.

For it is at the centre of an international scandal which has infuriated the Greek government and may yet help sabotage the chances of a comprehensive peace settlement to the Israeli- Palestinian conflict. It has also fuelled local demands from the Church's angry flock of 200,000 for the Greek hierarchy to be replaced, as in other Christian communities, by Arab prelates.

Irineos I, the beleaguered Greek Orthodox Patriarch - or as his most senior bishops have repeatedly referred to him since an unprecedented meeting of the Synod voted to depose him last Friday, the "ex-patriarch" - is accused of being behind a secret and politically explosive property deal.

Under it, three large buildings on the north side of Omar Ibn al Khattab square have been made over by 198-year leases - to all intents and purposes sold - to a group of as yet anonymous Jewish investors. What makes the deal so politically radioactive is its potential to alter the delicate ethnic and religious balance of the Old City.

The shops, the Imperial and the Petra hotel, are just inside the Jaffa Gate, at what is the most popular entry-point, but also the junction of the Christian, Muslim and Armenian quarters. Under the "Clinton parameters", laid down at Camp David in 2000, the Christian and Muslim sectors were to fall within Palestinian control, on the principle that what was Arab would be Palestinian, part of a new Palestinian capital of East Jerusalem, and what was Jewish, Israeli. Any peace deal would have to ensure secure access for Jews seeking to enter the Jewish quarter and to pray at the Wailing Wall.

But a Jewish foothold, and there is a widespread presumption in the Old City that settler organisations passionately devoted to the idea of an "undivided and eternal" Jerusalem as the Israeli capital are involved in the purchase, on the north, indisputably Arab, side of the square would create a new and dramatic Jewish "fact on the ground", calling into question the Arab character of the quarter and torpedoing Bill Clinton's stipulation for "maximum contiguity" in the then existing sectors in Jerusalem.

Mr Diwani, whose father, Mohammed, took a "protected" tenancy" of the hotel from the Church in 1949, was by his own wildly understated account, "surprised" when he read in the Israeli newspaper Maariv in March about the transaction. But he has been aware for a long time of the intense interest of Jewish figures in the site .

About 18 months ago, he says, a pleasantly spoken American aged about 70, "Jewish but without a kippa", says Mr Dijani, turned up unannounced and asked the proprietor to spare 10 minutes to show him round. As they paused on the second floor, "He looked me in the eyes and said, 'How much do you need for me to buy you out?' I smiled and said I have never thought of this question. He said, 'How can a man like you go to sleep without thinking of a price'?" But Mr Dijani politely insisted his tenancy was not for sale in such circumstances and his visitor left.

When the story broke in the Israeli press - possibly leaked to "soften up" public opinion about the secret $130m deal - Mr Dijani sought an audience with the Patriarch. He says his family had long enjoyed warm relations with the patriarchate. But even in a Church frequently riven by scandal and intrigue, Irineos is a controversial figure.

Paradoxically, Israel refused to recognise him for three years after his election in 2001 because of his perceived alliance with the Palestinian Authority, and Yasser Arafat, in particular. But its grudging decision to do so in 2004 was this year overturned by an Israeli court on the grounds that Irineos had won his election with the help of criminal figures from Greece, including Apostolos Vavilis, a convicted heroin trafficker.

Vavilis has also been the central figure in Greek criminal investigations as an associate of Archbishop Christodoulos, head of the Church in Greece, who has himself been engulfed in a scandal over reports accusing his clergy of engaging in the illegal trade in antiquities, trial-fixing and sexual misconduct.

In an interview while still on the run, Vavilis claimed that Irineos had offered him $400,000 to run a dirty-tricks campaign against his two main electoral rivals but had failed to pay up. In an atmosphere in which rumours about homosexuality among the Greek clergy are rife, the dirty tricks supposedly included unfounded allegations against rivals, and the wholly baseless assertion that the Patriarch's main opponent, Archbishop Timotheos, had hired a Palestinian hitman to assassinate him.

Before the Jerusalem patriarch was recognised by Ariel Sharon's cabinet, he entrusted the financial affairs of the Church to the patriarchate's financial manager Nicholas Papadimas, apparently granting him power of attorney. Mr Papadimas has disappeared after facing allegations about at least $700,000 reportedly missing from church accounts. The Patriarch told Greek government officials that the financial manager had forged documents and abused his authority to sell a shop in Jaffa Gate.

Mr Papadimas, also undeterred by his fugitive status from publicising his own version of events, has been quoted in the Greek and Israeli press as saying the Jaffa Gate transactions were authorised by Irineos. The newspaper Haaretz said Mr Papadimas claimed the Patriarch had done it to ingratiate himself with the Israeli authorities.

Mr Dijani says when he visited the Patriarch, he asked him: "Your Beatitude, why don't you say, 'I have made a mistake and ask the whole world to stand by me'?" When the cleric repeated his denials, Mr Dijani says he said: "But you gave [Mr Papadimas] the power of attorney."

Irineos' position was not helped when investigators sent last month by an increasingly worried Greek Government failed to come up with a convincing explanation. "From all the pieces of evidence requested, only a few were given to us," their official report said. "In themselves, they were not helpful or informative enough for our case."

Although the Israeli courts have not always fully upheld the cover afforded by a protected tenancy, Mr Dijani still represents a possible obstacle to a complete takeover of the hotel. He suggests there might have been three possible scenarios. "One was that the deal gave ample time to the patriarchate to buy me out after a while; the second was they would be very patient. The protected tenancy lasts for three generations and they would have to wait until after my grandsons had run the hotel. But that would be a very long wait. And the third would be that they would bring all sorts of pressure on me to leave this place."

The last might be especially true if, as some Israeli commentators, lawyers, along with ecclesiastical sources have freely speculated that the Israeli government is, even indirectly, behind the deal. The sum is certainly larger than usually employed by settler groups. The Israeli authorities categorically deny any part in the transaction.

But there is a precedent. In the early 1990s, the patriarchy, the biggest ecclesiastical landowner in the country and owner of perhaps 20 percent of the Old City, sold St John's Hospice, close to the Church of the Holy Sepulchre, to settler interests in a deal which turned out to have been financed by the Housing Ministry, acting through a foreign company and on the orders of the then minister, David Levy.

Either way, the patriarchate is now locked in what is surely the deepest crisis in its 16-century history. Irineos left the patriarchate after the synod meeting which his dwindling band of supporters insist was not properly constituted, and returned under Israeli police guard early on Saturday morning to his residence, from where he has continued to insist he remains as patriarch, in defiance of his most senior colleagues. Last night he was summoned to Istanbul by the spiritual leader of the world's Orthodox Christians, the Ecumenical Patriarch Bartholomew I, for urgent discussions.

But in the end, the future of the Patriarch may be less important than that of the property deal made on his watch. As Dimitri Dilani, of the National Christian Coalition, a Palestinian pressure group in the church which is also critical of the Palestinian Authority for not having withdrawn its recognition of Irineos before, put it: "We have won a battle but we are a long way from winning the war. We need the land returned and the fate of the money established."

Last Saturday, in the crowded offices of the patriarchate, the senior prelates seemed euphoric-almost light-headed about their courage in voting to disown him the evening before. But Archbishop Alexios of Gaza, for example, was almost casually dismissive about the prospect of unstitching a deal with huge regional implications. "Of course, what has happened is a dark moment for the patriarchate," he said. "But this can't be cancelled. An official thing has taken place."

Archbishop Timotheos, widely seen as the mastermind behind Friday's palace coup, said: "Our Israeli friends should understand that we haven't voted against them but against the behaviour of the Patriarch who did all these things in a secret way."

Asked if attempts would be made by the dissidents to anull the deal, the archbishop said he could not discuss "political matters" until after the elections he said would be soon, to replace the Patriarch. For all Israel's protestations about not interfering in the internal affairs of the patriarchate, its power to give, or deny, recognition to a patriarch cannot fail to exercise an influence.

The move to acquire the properties, prompting the fear among many Christians in the Old City that the settlers may soon arrive to occupy them, is on a par with many other purchases, outside the Old City as well as inside it, which resulted in about 1,800 settlers now in residence in various strategic points inside East Jerusalem neighbourhoods populated by 230,000 Arabs.

Like the expansion of Maale Adumim to join up with Jerusalem, the routing of the separation barrier outside the city and other developments appear calculated to head off the prospect of Jerusalem becoming the capital of a viable Palestinian state. And they appear to cut directly across Condoleezza Rice's warning this year to the Israeli government not to do anything that would pre-empt final status negotiations with the Palestinians on the city.

Daniel Seidemann, the Israeli lawyer who has been monitoring, and opposing, such settlement activity in Jerusalem for years says any peace plan would now have to apply "microsurgery" to guarantee secure passage for Jews through the Armenian quarter to the south of the square, through to the Jewish quarter and the holy Wailing Wall. He adds: "All of a sudden the border becomes mobile. You have a settler presence. The people [who acquired the properties] here were not making a random hit."