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Back in 1991, Israeli Cabinet Minister Yitzhak Moda'i approved an urban development project for a hill in southeastern Jerusalem called Har Homa.

His order called for expropriating Arab and Jewish land to build a Jewish neighborhood there — a plan that now threatens to bulldoze the Israeli-Palestinian peace talks.

Of course, in the pre-Oslo Accords days, Moda'i could never have known the impact of his order.

"Whoever dreamt about political developments? Nobody did," said Moda'i, who was then Israel's finance minister under a Likud-led government.

Building on Har Homa's 465 acres was neither a sovereignty nor a security issue back then, he recalled Wednesday of last week in San Francisco. It was simply another construction project.

But now that Har Homa has turned into a tug-of-war between Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Yasser Arafat, Moda'i insists that Israel's leaders should not budge.

"If they now back out on Har Homa, it will be an admission that building in Jerusalem is a political issue," said Moda'i, who was on the West Coast to help raise funds for his alma mater, the Technion-Israel Institute of Technology in Haifa.

Israel, in effect, would be acknowledging that the Palestinians have a claim to Jerusalem.

"If you yield to threats, soon enough you won't be able to do anything, anywhere in Israel," Moda'i said.

Har Homa, a tree-covered hill in an area annexed by Jerusalem after the 1967 Six-Day War, has drawn international attention in the past few weeks. Ground-breaking for 6,500 apartments and homes for Jews began this week amid Palestinian demonstrations. Arafat and other Palestinian leaders have protested this and other recent incidents by threatening to halt the peace process.

If Israel goes through with constuction plans for Har Homa, it will crush Palestinian desires for a contiguous Palestinian settlement from eastern Jerusalem to nearby Bethlehem. It likely will end hopes for a Palestinian capital in Jerusalem.

If Israel reneges, the Jewish state will acknowledge it doesn't have absolute sovereignty over the city. It will mean that Israel likely anticipates a redivided Jerusalem.

Moda'i's advice to Netanyahu on Har Homa: Disregard any pressure to give in, whether it comes from Palestinians, Europeans or Americans. If Israel capitulates on Jerusalem, he asked, where does it then draw the line — with Tel Aviv?

"If we show weakness, this will be the end of the state of Israel, not by the Arabs but by the Jews."

Moda'i, now 71, served in the Israeli government for nearly 20 years. Elected to the Knesset in 1973, he was later a minister of energy, finance, justice and economy under various governments. The Tel Aviv native finally left politics after the 1992 elections when his New Liberal Party failed to win any Knesset seats.

Moda'i, now the head of his own investment company, is an Israeli from the old school, a tough ideologue who calls the Oslo Accords a "bad mistake" and doesn't believe giving up land will lead to peace.

"We paid so heavily for every inch of land, and [Netanyahu] is giving it up like he inherited it from his grandfather," Moda'i said. "I feel so bitter about it."

He doesn't blame the Palestinians for making demands or taking advantage of the situation. He calls Arafat a "very shrewd man" who "plays so beautifully the underdog."

Moda'i instead raps Netanyahu for what he sees as a constant stream of political fumbles.

"Every step we make Arafat turns around to his benefit."

The prime minister's main mistake on Har Homa, Moda'i said, was transforming a municipal issue into a nationalistic one.

Until last year, the Har Homa project had been held up because of court battles from Jewish and Arab landowners who disputed Israel's confiscation, though they were compensated for the acreage.

Then several months ago, Moda'i said, Netanyahu decided to turn Har Homa into a tool to appease far-right Jews unhappy with his concessions to the Palestinians.

Moda'i now concludes that Netanyahu, who never previously served on an Israeli Cabinet, simply doesn't have enough experience yet to lead the nation.

"I think eventually he will learn…But why pay so heavily for his tuition?"

Moda'i isn't impressed by warnings that the Palestinians will end the peace process over Har Homa.

"What is the threat, that they'll stop the peace talks? They'll get nothing. That they will start the intifada? Then we'll react like one reacts to an intifada."

But a few moments later, Moda'i reconsiders his statement that Israel could withstand another Palestinian uprising.

"Israel should have the political will. Whether it has it or not, I don't know," he said.

Moda'i also insists that he's not oblivious to Palestinian objectives. If he were in their shoes, he would make the same demands.

"I understand their interests. We're not that stupid," he said. "But if I've got two contradictory interests, mine and his, should I support his? It's ridiculous…What are we, angels? If we are angels, we shouldn't bleed that much."