HIGHLIGHTS: Qatar Current Chairman of OIC Describes Move as Violation of UN Resolutions While Palestinians Describe it as an Act against Peace||State Department Says Washington Still Believed Future Status of Jerusalem Should be Decided in Negotiations Between Israel & the Palestinians||Blair Puts Washington on Notice that Policy Towards Israel Must be Even Handed||Occupation Forces Arrest 32 Palestinians across West Bank & Reoccupy Buildings Near Arafat's Compound in Ramallah|| STORY: Arabs bitterly denounced on Tuesday U.S. legislation requiring President Bush's administration to identify Jerusalem as Israel's capital.

Some of Washington's Arab allies acknowledged that Bush had stated that U.S. policy on Jerusalem was unchanged despite the provisions inserted by Congress into the act that provides over dlrs 4 billion to run the State Department in 2003.

But most Arab reactions reflected anger at what was seen as fresh evidence of U.S. bias toward Israel, which annexed Arab East Jerusalem, encompassing one of Islam's holiest shrines, after capturing it in the 1967 Middle East war.

"This is an act against peace, an act of incitement," Palestinian Planning and International Cooperation Minister Nabil Shaath told Reuters in the West Bank city of Ramallah.

"It is against the commitment of the United States, contrary to international law, contrary to agreements signed by the United States. This is really totally unhelpful and obstructs any move toward the peace process," he said, calling the U.S. legislation "an insult to the Arab and Muslim world."

The Palestinian opposition group Islamic Jihad said the move "reflects the frank antagonism of the U.S. administration toward the rights of Palestinians, Muslims and Arabs to Jerusalem, and reveals its outrageous bias for the Zionist usurper entity."

POLITICAL PRICE

In Beirut, Lebanon's most prominent Shi'ite Muslim leader said the United States should pay a steep price for the law.

"This decision is a blow to the Arab and Muslim worlds, and we call for a strong stance against U.S. policy so that America will know that its contempt for Arabs and Muslims and its unwavering commitment to Israel will cost a great deal politically," Sheikh Mohammed Hussein Fadlallah told Reuters.

Fadlallah, former spiritual guide to Lebanon's Hizbollah fighters, said the decision proved that U.S. policy was one of slavish devotion to Israel in its conflict with Palestinians.

Qatar, current head of the Organization of the Islamic Conference, condemned the law as "a flagrant violation of U.N. Security Council resolutions on Jerusalem."

But a Qatari foreign ministry official told the state-run Qatar News Agency that his country was satisfied with Bush's affirmation that U.S. policy on Jerusalem remained the same.

Bush signed the Foreign Relations Authorization Act for 2003 on Monday. Its provisions go beyond previous moves by Congress, which has pressed successive administrations on the related question of moving the U.S. embassy from Tel Aviv to Jerusalem.

The administrations have promised to make the move but have repeatedly put it off because of the ill feeling it would create in the Arab world since under international law, East Jerusalem is occupied territory.

An Egyptian official said Bush was in a tricky position because vetoing the bill would scupper the funding for U.S. diplomacy around the world. But he said the legislation did not serve peace. "To the contrary, it would ignite further reaction from both the Arab sides and the Palestinians."

"ONE-EYED POLICY"

The official, who asked not to be named, said Egypt took the decision as another signal that the United States was pursuing a "one-eyed policy" that looked only to Israel's interests.

"No one can change the Arab, Egyptian and Muslim position on (east) Jerusalem. It is an occupied, Arab city," he declared.
Kuwait, a close U.S. ally, voiced regret at the legislation.

"I know of the pressures inside the United States and we hope this will be amended at a later stage," Kuwaiti Foreign Minister Sheikh Sabah al-Ahmad al-Sabah told reporters.

State Department spokesman Richard Boucher said on Monday the United States still believed the status of Jerusalem should be decided in negotiations between Israel and Palestinians.

The legislation adds three mandatory provisions which change the way the United States treats the city.

It says money cannot be spent on the U.S. consulate in Jerusalem unless the consulate is under the supervision of the U.S. ambassador to Israel. The U.S. consul general, who deals mainly with Palestinians, now reports to the State Department.

Any U.S. government document which lists countries and their capitals will have to identify Jerusalem as Israel's capital.

And in U.S. documents such as passports, birth certificates and nationality certifications, U.S. citizens born in Jerusalem may insist that their place of birth be recorded as Israel.

The legislation, in another section opposed by the White House, also withholds dlrs10 million in aid allocated to Lebanon in 2003 until the Lebanese army deploys to the border with Israel.

After Israel quit southern Lebanon in 2000, the Lebanese army did not take over all the territory, allowing Hizbollah to keep up cross-border attacks in the disputed Shebaa Farms area.

The Lebanese government made no comment on the U.S. decision, but Hizbollah dismissed it. "We don't need American aid, and we hope the government tells them that," the group's deputy secretary-general Naeem Kassem told a rally on Monday. (Additional reporting from Ramallah, Beirut, Dubai and Cairo)

BLAIR PUTS WASHINGTON ON NOTICE

Britain, Washington's main ally in any future action against Iraqi President Saddam Hussein, also put the United States on notice that policy toward Israel must be even-handed.

British Prime Minister Tony Blair, slammed by left-wingers in his Labor Party for threatening war in Iraq instead of trying to end Israeli-Palestinian violence, said U.N. resolutions must be implemented across the Middle East, not just in Baghdad.

"Yes, what is happening in the Middle East now is ugly and wrong -- the Palestinians living in increasingly abject conditions, humiliated and hopeless (and) Israeli civilians brutally murdered," he told Labor's annual conference.

Blair called on Israel and the Palestinians to resume full peace negotiations by the end of the year.

The United States, the main Middle East peace broker, has made renewed talks on Palestinian statehood conditional on security and anti-corruption reforms in the Palestinian Authority and a new leadership "not compromised by terror."

ISRAEL ARREST 32 PALESTINIANS ACROSS WEST BANK

Israel's occupation army meanwhile confirmed Tuesday that at least 32 Palestinians had been arrested overnight and said 23 of them were "wanted suspects" in attacks on Israel. Many of them were captured in Jenin in the far northern part of the West Bank.

By dawn, Israeli forces occupied three buildings near Arafat's headquarters, which they had abandoned on Sunday following a 10-day siege that destroyed most of the structures surrounding the Palestinian leader's office.

Troops were seen on the roof of the eight-story Palestinian Ministry of Culture building, about 500 meters (yards) from Arafat's office, and on the roof of another eight-story building still under construction. They were also seen at least briefly in a nearby house.

PHOTO CAPTION

Al-Aqsa Mosque
· Islam's third holiest site
· Was the direction for prayer before Mecca became the focal point of worship
· Building finished in 705 AD on the site of an earlier wooden mosque
· Known as a centre for worship and learning