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JERUSALEM — The B'Tselem human rights group Monday accused Israeli governments over the past 18 months of pursuing a policy denying Jerusalem residency rights to hundreds or thousands of Palestinians born there.

Israel's Interior Ministry countered B'Tselem's charges, contained in a report released Monday, with a 20-page transcript of High Court proceedings concerning a case brought by a Palestinian resident of Jerusalem.

In that case the Palestinian was considered a "permanent resident" under the Law of Entry into Israel and nothing more.

Noting that Jerusalem's Arab residents have the right to apply for Israeli citizenship, the Interior Ministry statement said, "those who have not taken citizenship fall under the regulations concerning all other permanent residents (Americans, Russians, English, etc.) who live in the state of Israel."

B'Tselem's 43-page report, entitled "The Quiet Deportation," says that "viewing East Jerusalem residents as foreigners who entered Israel is perplexing since it was Israel that entered East Jerusalem in 1967.

"The perception of East Jerusalem's residents as immigrants residing in their homes pursuant to the beneficence of Israel and not by right is the `original sin,' which currently enables the authorities to deport them from their homes," the report says.

The Interior Ministry's position has meant that any Jerusalem resident who has moved out of the city for seven years automatically loses the right of residence in the city. This means they lose their Jerusalem identity card, which enables them to enter Jerusalem to work.

And thousands of Jerusalem Arabs have chosen to live outside the city borders because of Israeli building policies, the report charges.

"In comparison with the massive construction for the Jewish population, few buildings were constructed for Palestinians," B'Tselem notes.

Some 64,870 dwellings were built mostly by public construction for Israelis, and 8,890 for Palestinians, most by private construction, it says.

"As a result of this policy the housing shortage among the Palestinian population currently exceeds 20,000 housing units."

This has also raised Jerusalem rental prices in Arab areas.

The Interior Ministry estimates that 600 Palestinians have lost their Israeli identity cards by living outside Jerusalem or by taking foreign, often U.S., citizenship.

B'Tselem estimates that 70,000 Palestinians with Israeli identity cards live outside Jerusalem and therefore could lose their residency rights.