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Tomorrow is the first full day of President Obama's trip to the Middle East. He'll visit Israel and the occupied West Bank as well as Jordan. His trip comes as Israel continues to expand its settlements, angering Palestinians. There is a particular focus on one housing project called E1.

And as NPR's Larry Abramson reports, many fear it could make a peace agreement impossible.

LARRY ABRAMSON, BYLINE: To understand why the Israeli government wants to build E1, climb to the top of Mount Scopus. From here, former government spokesperson Miri Eisin says, you can see that Jerusalem doesn't have much room to grow.

MIRI EISIN: To the east, you're in the West Bank. To the north, you're in the West Bank. To the south, you're in the West Bank. Jerusalem is like a finger. OK, it was surrounded.

ABRAMSON: Israel found a way out of that pincer grip when it seized the whole of Jerusalem in the 1967 War. The country began building Jewish neighborhoods inside East Jerusalem. Back then, it was almost entirely Arab. And past the city limits, Israel built entire towns, islands of Israel surrounded by the West Bank.

One of the biggest of those island cities is Ma'ale Adumim, a town of 40,000 people several miles east of the Jerusalem city line. Ma'ale Adumim has been here for decades. Now, Mayor Benny Kashriel says a new generation of residents has grown up and wants to find homes in the same settlement.

MAYOR BENNY KASHRIEL: We have a lot of children that have been born here, were raised here, were educated here. Now, there are young couples. They want to live in the place they have been born. And we have to give them this opportunity.

ABRAMSON: E1 would provide more than 3,000 new housing units for that next generation. But it would do much more than that. The addition would end Ma'ale Adumim's isolation by linking it directly to East Jerusalem. That's why groups critical of settlement activity say E1 is not just a housing project. It's part of an effort, they say, to build an Israeli ring around the Palestinian neighborhoods of East Jerusalem and cut them off from the West Bank.

Betty Herschman of the group Ir Amim gives tours of the city to illustrate how the government is using city planning for political ends.

BETTY HERSCHMAN: The goal would appear to create a greater Jerusalem. The only way to do that is continue to expand the boundaries out.

ABRAMSON: That greater Jerusalem, she fears, would end the Palestinian dream of having the city as the capital of a future state.

Adnan Husseini is the Palestinian-appointed governor of Jerusalem. He says Israel wants to use E1 to take Jerusalem off the table for future negotiations.

ADNAN HUSSEINI: This is number one, of course, is to have East Jerusalem. And they wanted also inside of East Jerusalem to have minimum number of people, so as we are minority as Palestinians and there is no issue.

ABRAMSON: The U.S. and the European Union have voiced similar concerns, fearing that E1 could make a two-state solution impossible because it would cut Jerusalem off and nearly slice Palestine in two.

The timing of the E1 announcement made it clear that this is no ordinary settlement. Israel dusted off decades-old plans for E1 last November, immediately after the Palestinians won their fight to be recognized as a state by the United Nations.

Dore Gold, a former Israeli ambassador to the U.N., says E1 was indeed a political response to that act.

DORE GOLD: Certainly, if the Palestinians go forward with their unilateralism, if they take Israel to the International Criminal Court and a number of other measures, then Israel will have to protect its interests. And that's what the E1 struggle is all about.

ABRAMSON: Israel has defended E1 by saying it's just part of Ma'ale Adumim, arguing that previous peace talks assumed that major settlements would remain part of Israel. In exchange, Palestinians would agree to accept land inside Israel. But Palestinian willingness to exchange land may be fading.

On a windy day, the proposed site of E1 is a desolate spot, with an impressive view of the Dead Sea and the Jordan Valley. In the other direction, you can see the Shuafat refugee camp and Arab villages that would find themselves surrounded by E1.

Hadar Dibis is an activist from the camp. Speaking through an interpreter, he says his people will never swap.

HADAR DIBIS: (Through Translator) Israel should be on its side and the Palestinians should be on their side. And therefore, we reject the whole notion of transfer of land.

ABRAMSON: Some blame President Obama for making the prospect of settlements like E1 such a powerful issue. He has referred directly to Israel's 1967 borders as a basis for future agreements. That may have encouraged the Palestinians to dig in. And it may be spurring Israelis to keep building while they still can.

Larry Abramson, NPR News, Jerusalem.

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