The hotly contested area known as E1, between Jerusalem and the Ma'ale Adumim settlement bloc in the West Bank, serves as a testing ground for Prime Minsiter-designate Ehud Olmert's strategy of setting permanent, internationally recognized borders for Israel. Can the Olmert experiment work?

The insistent tak-tak-tak of the mechanical diggers bounces off the steep hillsides and echoes through the valleys, giving the impression from a distance away that a whole city is being built out here, somewhere in the desert wilderness between Jerusalem and the Dead Sea. But a drive up a winding unpaved road followed by a 20-minute hike from the point where it turns into a track of soft dust and sand reveals a building site of modest proportions - at least for now.

A team of about 20 laborers works off to one side, sweating in the unseasonal midday heat, while the heavy machines dig a deep hole in the ground. Finally, after years in the planning, construction of an Israeli police station is under way in the now infamous E1 area, a patch of empty West Bank land that stretches from the eastern municipal boundary of Jerusalem to the settlement-city of Ma'ale Adumim, which sits across the Jerusalem-Dead Sea highway some five kilometers (three miles) to the east.

Infamous, because every prime minister of Israel for the past decade has wanted to develop E1 in order to fill in the space between Ma'ale Adumim and Jerusalem, with the intention of securing Israel's hold over the settlement and its smaller satellite communities, which together constitute the Ma'ale Adumim settlement bloc. And every U.S. administration up until now has nixed Israeli development here, on the grounds that it would seriously hamper Palestinian territorial contiguity between the north and south of the West Bank, as well as access from the West Bank to Jerusalem, thereby undermining the viability of a Palestinian state with East Jerusalem as its capital, the only realistic formula on the table for Israeli- Palestinian peace.

The building work has only been going on for a week or so, but rapid progress is being made. Shaher, a contractor who brings the Palestinian workers in from Hebron by bus, says he is supplying 130 laborers a day to work in three shifts around the clock. The police station, a four- or five-story building, should be finished in about a year.

Much of the E1 area, which spreads over 12 square kilometers, consists of dramatic inclines and deep ravines that are not suitable for construction. But plans for development on two plateaus have been in the works for years, and include designs for 3,500 residential units and a hotel district in the area of the police station, as well as an industrial park a short distance to the north.

By now, the long-awaited development of E1 has become part of a larger Israeli plan, which includes the construction of a 38- kilometer section of the security barrier around the Ma'ale Adumim bloc, and a system of road to channel Palestinian traffic between the north and south of the West Bank, either detouring around the bloc to the east or cutting through, without entering Jerusalem. A road link marked on planning maps as the "eastern ring road" is now being built between the Palestinian suburbs of Anata and Al-Zayem, with a tunnel leading into Al-Azariya, and should be completed by the end of the year. A crucial element in the plan, it is designed to provide the Palestinians with transportational, if not territorial, contiguity between the north and south of the West Bank once the barrier has gone up.

E1 can be seen as a test case for Ehud Olmert's declared goal of setting permanent borders for Israel, unilaterally, if not as the result of an Israeli-Palestinian agreement. The prime minister-designate has expressed his preference for a negotiated settlement with the Palestinians, but with a Hamas government sitting on the other side, the prospects seem dim. In that case, Olmert has clearly articulated his intention to move ahead with the Palestinians, withdraw from large parts of the West Bank and set a border that, in its broad outlines, will incorporate into Israel the major Jewish settlement blocs of Ma'ale Adumim, Ariel and Gush Etzion. Olmert has also announced his intention to seek understandings with the United States for such a compromise.

Ma'ale Adumim, a settlement of 33,000 residents, has for all intents and purposes become a suburb of Jerusalem, even the Palestinians have tacitly accepted the demographic reality. The Geneva Accord, the unofficial 2003 draft of an Israeli- Palestinian final-status agreement, envisaged the settlement remaining under Israeli control. The competition is over who controls the space in between. The Palestinians reject the notion of a permanent Israeli presence in E1, and consecutive U.S. administrations have viewed this as the red line that Israel should not cross.

On the ground, however, Israel already seems to be methodically, unilaterally, proceeding according to plan. The building of the police station is one clear indication of Israeli intentions, and the soon-to-be completed "eastern ring road" is another. After years of delay, Israel has also just embarked on construction of the security barrier in the area, in a small section between the entrance to Ma'ale Adumim itself and Al- Azariya. So far, Washington seems to have been either too distracted or too disinterested to react. U.S. officials in Jerusalem and Tel Aviv did not even seem to be aware until very recently of the advanced stage of construction of the ring road. If E1 is a laboratory for Olmert to test his unilateral strategy, the results may seem to be encouraging so far.

Building first started in Ma'ale Adumim itself in 1975, during Yitzhak Rabin's first term as prime minister. And it was Rabin, during his second term in office, in August 1994, who formally included E1 within Ma'ale Adumim's city limits, "or order to create territorial contiguity" between the fast-growing settlement and Jerusalem, according to Benny Kashriel, Ma'ale Adumim's mayor for the past 14 years. That Rabin term produced a general master plan for the area (the term E1 is short for East 1, as the parcel of land was marked on old Jerusalem area zoning maps). In 1997, prime minister Benjamin Netanyahu's cabinet commenced procedures to authorize the allocation of the land to built on, and the Housing Ministry started work on detailed plans. Netanyahu's successor, Ehud Barak, supported the project, according to Kashriel, and the bureaucratic process for the approval of the plans got underway.

Even before the plans were approved, the Housing Ministry had already started carving out a road up to the site in 2003, complete with huge supporting walls, and had begun preparing the ground for construction. (Paved roads already led from the city of Ma'ale Adumim in the direction of E1, with a bridge running across the main Jerusalem-Dead Sea highway.) In the first week of September 2004, the work at E1 was frozen after it was exposed in the Washington Post. U.S. Secretary of State Condoleezza Rice, who personally "eyeballed" the construction in E1 during an official visit to Jerusalem, according to one Washington source, is vehemently against it.

The U.S. objections to Israeli designs for E1 have been clear all along. "During Netanyahu's time, we made an issue of it and said that Israeli absolutely could not proceed," says Dennis Ross, the chief Middle East peace negotiator for presidents George H.W. Bush and Bill Clinton. Adds Martin Indyk, who was twice American ambassador to Israel: "E1 constituted the only open area between East Jerusalem and the West Bank, because of the pattern of Jewish suburbs [built around the capital]. So it was easy for U.S. policy-makers to understand that a territorially contiguous Palestinian state with East Jerusalem as its capital, as per the Clinton parameters, meant Israel not building anything across the road from Ma'ale Adumim."

Nevertheless, Israeli officials have plugged ahead. In early 2005, the Ma'ale Adumim city council announced plans for the residential neighborhood and the police station, and in August of that year, there were submitted for public review, a bureaucratic formality preceding final authorization. The same months, Netanyahu kicked off his campaign to regain leadership of the Likud in E1 and a day later, vice premier Ehud Olmert declared that Israel would build homes to connect Ma'ale Adumim to Jerusalem "at the appropriate time." (A day after that, Olmert admitted in an interview with the Jerusalem Post that Israel "had committed itself to freeze the building" in the absence of American consent.)

Prime Minister Sharon, in the meantime, announced the go- ahead for building the police station – a new headquarters for the Judea and Samaria District police, to be relocated from its current site in the Ras al-Amud neighborhood of East Jerusalem. The period of public review ended this past February 5, and the plan received final authorization. Eight days later, the Ma'ale Adumim council issued the relevant building permit and by early March, the bulldozers were back.

The issue of the police station has always constituted a "gray area" for the Americans, says Indyk, now director of the Saban Center for Middle East Policy at Washington Brookings Institution. That's because anything that touches on Israeli security tends to be met with a degree of understanding from the administration.

On the surface, the security argument seems spurious: The Judea and Samaria District police headquarters could presumably be located in any number of places besides E1. Israeli security sources who have spoken to The Report justify the decision to build it in E1 on grounds that the headquarters should be "at mid-point" of Judea and Samaria. Daniel Seidemann, a Jerusalem attorney and founder of Ir Amim (City of Nations), an organization that focuses on Israeli-Palestinian issues in the capital, submitted a petition to Israel's Supreme Court in late March demanding a temporary restraining order against the construction, arguing that E1, a relatively isolated spot, is an illogical place for a police station. Once the area is fenced off, he notes, it will not even be freely accessible to the Palestinian population of Judea and Samaria, which it is also meant to serve. Furthermore, Seidemann asserts that the new police station is part of what he calls a "land laundering scheme," whereby the freed-up land in Ras al-Amud will be transferred to its original Jewish owners from 60 years ago, represented by the Committee of Bukharan Jews in Israel, and will be used to build another Jewish enclave, alongside the Iriving Moskowitz complex, in the heart of what is now a Palestinian East Jerusalem neighborhood on the slopes of the Mount of Olives.

For the Israeli security establishment, however, the police station is just the first step in a grander plan to secure Israeli control over the Ma'ale Adumim-Jerusalem corridor and to defend the capital from the east. The official municipal boundary of Jerusalem, drawn up in 1967, is "out of date" and has become blurred by the spread of Palestinian suburbs where Jerusalem meets the West Bank, according to Amitai Levy, the Border Police commander of the "Jerusalem seam." "What matters is what is best to defend Jerusalem," he told an American delegation touring the seam area with him last November. In digging for the security barrier south of Abu Dis, he told the visitors, the Israelis had unearthed traces of a Roman outpost and a Byzantine church atop a hill called Jabal Rom. "We came to the same conclusion as they did," Levy declared. "In order to defend Jerusalem militarily, we have to hold the high ground to the east."

"Eyeballing" the E1 construction site in the company of this reporter days before submitting his Supreme Court petition, Seidemann himself was surprised by the pace of building as heavy trucks roared past us up the hill. An activist who is in constant contact with American officials and has specifically lobbied against Israeli construction in E1 – to the chagrin of many in the Israeli security establishment – Seidemann remarked that the resumed construction here has been met with "radio silence" from Washington.

That is because the U.S. still has no concrete position on the issue of the police station. And even if it did have, it would not have been likely to air any public criticism against Israeli during an election period when any comment could be exploited for political ends. Moreover, this Bush administration has long since chosen to avoid micromanaging the Israeli-Palestinian conflict, and has more burning issues on its plate, such as the Iraq project descending into chaos and Iran's nuclear ambitions. Notes Indyk: "The fact that nothing has been said about the police station shows that it is at the bottom of the administration's list of priorities, if it is there at all."

Ma'ale Adumim itself looks like a model town. Its streets are spotlessly clean and bordered with a riot of spring flowers. Since the 1970s, the settlement has flourished into the most populous in the West Bank and the city has developed "in all direction," according to Mayor Kashriel. Its municipal borders take in 55,000 dunams (11,000 acres) of land, and area, critics like to point out, larger than Tel Aviv. Because of the difficult terrain, only about 20 percent of the city's municipal area can be built on. The residential project in E1, designed to house around 15,000 Jews, is an integral part of his development plan. Another 7,000 Israelis live in smaller satellite communities in the bloc such as Qedar and Kfar Adumim.

In the not-too-distant past, Kashriel told The Report ("Growing to Jerusalem, June 14, 2004") that "Ma'ale Adumim was established to break Palestinian contiguity," adding that "Ma'ale Adumim necessarily cuts the West Bank in two." In March 2006, however, when Kashriel meets me in his office in the impressive city council building next to the city's shopping mall, his message has been recrafted, presumably to cause as little discord with the Americans as possible, and to try to persuade me, or them, that the Palestinian and American objections to Israeli building in E1 are unfounded.

The Palestinians, he asserts, have misleadingly persuaded the Americans that E1 will split the West Bank in two, now claiming that to "not true at all." Unfurling a large map, he points out the new road, from Anata to Al-Azariya, that will facilitate Palestinian north-south traffic, and which is due to be completed in a matter of months. More roads are planned to run around the barrier to the east, in the less than 20 kilometers of wilderness the Palestinians will theoretically have between the Ma'ale Adumim bloc and the Jordanian border.

Kashriel has been trying to repair the damage, lobbying Israeli officials and the heads of the American Jewish organizations to make Israel's case for E1, and even requesting to meet with Rice herself over the maps, so far to no avail.

For now, Israel is maintaining a dust cloud of ambiguity over whether the development will stop at the construction of the police station, or whether the police station is really an excuse to build the infrastructure in E1 that will later allow for houses to start popping up around it. According to the physical evidence, including the start of the work on the barrier and the rapid construction of the ring rod, the unilateralist designs on E1 are apparently well under way.

In order to proceed, however, the new government, like Kashriel, will be seeking understandings with Washington over the E1 plan. Until now, it has generally been understood that Israel would not execute irreversible steps in E1, leaving the fate of the area to be decided in permanent status negotiations with the Palestinians. And while the recent Hamas victory has changed the timetable for any resumption of the peace process as far as Washington is concerned, the basic principles remain the same. Washington is not likely to publicly declare that a road link between the north and south of the West Bank constitutes adequate contiguity for a future Palestinian state. "It's not for us to say whether something is OK or not," says Stewart Tuttle, the U.S. Embassy spokesman in Tel Aviv. "In order for a permanent settlement to be viable, it has to be acceptable to both the Israeli and Palestinian sides."

There is zero chance at this stage that Palestinian leaders will accept the idea of a road link as adequate contiguity for a future state. Miftah, a Palestinian think tank headed by Palestinian legislator Hanan Ashrawi, issued a position paper in mid-March warning that the Israeli measure would "Isolate East Jerusalem from the West Bank," "put an absolute end" to Palestinian territorial contiguity, and "destroy the very foundations of peace."

But the U.S. opposition in principle does not seem to be hindering Israel for now. The issue of the security barrier around the Ma'ale Adumim bloc is a case in point. While Israeli officials deny that the two-year delay in building this particular portion of the barrier has been due to U.S. pressure, attributing it instead to domestic legal problems, there is no doubt that the size of the swathe of territory that Israel intends to fence in is a matter of controversy. "This administration would be hostile to the idea of Israel fencing in the whole Ma'ale Adumim bloc," says David Makowsky, a senior fellow at the Washington Institute for Near East Policy and author of a 2004 study, "A Defensible Fence: Fighting Terror and Enabling a Two-State Solution." U.S. Embassy spokesman Tuttle confirms that "when the barrier moves from being a security means to something appearing to be more political, it becomes a problem. That's the case whether we are talking about the Ariel bloc or Ma'ale Adumim. In terms of principles, our opposition to this is pretty black and white."

In fact, only a small segment of the 38-kilometer route around the Adumim bloc has been held up because of a petition to the Israeli courts. Much of the route is still awaiting final approval from the government's legal counsel, who has to make sure it upholds the Israeli Supreme Court principle of balancing Israeli security needs with the humanitarian needs of the Palestinians. Kashriel is no fan of the fence, and so has not been pushing for its construction. Yet senior Israeli sources assured The Report in late March that final government authorization of the route is due any day, and that the construction of the barrier around the bloc is imminent, based on the army planners' principle of providing protection for the maximum number of Israelis. (There are no Palestinians in the Ma'ale Adumim bloc.) The sources stress, however, that the barrier has been designed, and is still being built by the army, to serve as a temporary security tool, and not as a political border.

Olmert, for his part, is likely to continue quietly testing the boundaries to see where else hitherto black-and-white principles may turn gray. "The Bush administration is not going to be dealing with anything much until the next government is formed," says former peace envoy Dennis Ross. "Everything is being viewed now in the abstract." When it comes to E1, though, he believes the administration "will be revisiting this issue." "Martin Indyk, for his part, says that the Hamas victory has "put the last nail in the coffin of the road map and the prospect for Israeli-Palestinian negotiations," and that the administration is "not likely to get into a fight with Israel over E1 on behalf of Hamas." Both sides are now entering uncharted territory, he adds, leaving many question marks, not necessarily in terms of the United States changing its formal positions, but in turning a blind eye.

In the meantime, the bulldozers will keep working in E1 in the hope that the police station will be the beginning of a permanent foothold, not a castle in the sand.