“The city is dying,” businessman Nabil Feidy said. “East Jerusalem has always been poor, but the political situation and the wall have destroyed the economy completely.”

In their endless battles over Jerusalem, Israeli Jews and Palestinian Arabs routinely invoke God and history in asserting their respective right to sovereignty over the city’s Eastern sector. But for the Palestinians, there is an additional, very practical issue: East Jerusalem is the longtime commercial capital of the West Bank. Cut it off from its hinterland, and its economic rationale vanishes — along with its ability to sustain the 360,882 Palestinians living there.

According to a new report by the Association for Civil Rights in Israel and to interviews conducted by the Forward with residents in four neighborhoods, East Jerusalem, an area annexed to Israel on June 27, 1967, and declared part of its “eternal, undivided capital,” has fallen to unprecedented levels of poverty. The political and physical barriers separating it from the West Bank are viewed as a primary cause.

Nearly 80% of East Jerusalem Palestinians now live below the Israeli government poverty line, according to figures cited in the ACRI report, up from 64% six years ago.

“It’s a catastrophe,” said Daniel Gottlieb, deputy director-general of Israel’s National Insurance Institute, the equivalent of the social security administration.

The ACRI report bluntly attributes the problem to “‘the cumulative effects of annexation, neglect, rights violations and the completion of the separation barrier.”

Israel’s annexation of East Jerusalem after the 1967 Six Day War has never been recognized by the international community. A series of UN Security Council Resolutions, to which the United States abstained, have ruled it illegal.

Today, Israeli and Palestinian observers warn of increases in crime and violence, and of a turn toward religion as an outlet for social and economic distress among East Jerusalem residents. The Israeli government, they argue, is not paying enough attention.

“There is no money and no services, and the pressure is taking people to religious fundamentalism,” said Fakhri Abu Diab, an activist in the impoverished al-Bustan area of Silwan, beneath the Old City walls, a neighborhood where residents also face the threat of having their homes demolished on the claim that they were built illegally in the area of a planned biblical archaeological park.