"If a solution to the conflict between Israelis and Palestinians is to be found it has to be here in Jerusalem as well," said delegation leader and former Irish president Mary Robinson.

"We as Elders fear the possibility of a two state solution may be fading away, may be lost because of what is happening here in Jerusalem," she told a press conference.

Earlier, the Elders visited Silwan, a flashpoint neighbourhood in occupied east Jerusalem, listening to residents whose homes face demolition under a city plan to make way for a new biblical tourism park.

Robinson said the unequal treatment of the city's Jewish and Arab residents, together with plans to compel new non-Jewish citizens to swear an oath of loyalty to Israel as a Jewish state were undermining Israel's standing.

"We are worried that Israel is at risk of losing its credibility as a democratic state," she said.

In an apparent U-turn, Israel on Monday said the proposed law would apply to all new citizens, including Jews, but the amendment is facing opposition and is unlikely to gain enough support to pass into law.

The Silwan meeting took place in a protest tent that has become the focal point of the campaign against the planned house demolitions.

Aida Rishek, a mother of seven who lives in one of the condemned houses in Silwan's Al-Bustan area, told the former statesmen about the fear of being evicted from her home at any time.

"We want a promise from you," she said speaking through an interpreter. "Give us just one night to sleep without the fear of the arrest of my husband and my children."

Others described how undercover police units arrested children, how settlers and their security guards acted violently with impunity and how settler groups dominated the tourism industry in the crumbling neighbourhood that lies just south of the walls of Jerusalem's Old City.

One child, Muslim Odeh, 10, described being arrested and beaten, holding up a torn T-shirt and showing a scraped knee and a cut on his back.

"They made me kneel down and gave me a sandwich and wanted me to tell them who the other masked children were," he said.

Local children, many wearing T-shirts pulled up to cover their faces, often stand outside the tent throwing stones at settlers and Israeli security forces.

Former US president Jimmy Carter, who is part of the delegation, suggested the lasting solution would be a peace deal that would see Israel leave east Jerusalem.

"We don't have any authority, as you know, but we have a voice," said Carter. "We will be sure that they understand also the problems that you have described to us.

"And we will continue to work on a peaceful solution where the Israelis will withdraw from east Jerusalem and let this be the capital of a Palestinian state."

Later, Carter said they had raised the issue in talks with Jerusalem Mayor Nir Barkat and with parliament speaker Reuven Rivlin, telling Israel's treatment of its Arab citizens and other minorities was "very disturbing."

Barkat had, in turn, challenged the three about how they could celebrate the reunification of Berlin while calling for the division of Jerusalem. "The city must never be broken in two. No divided city in the world has ever succeeded," a statement from his office said.

The mayor later remarked: "It is clear to me that the involvement of biased third parties in the peace process does more damage than good. It pressures both sides to rush into a bad deal."

Israel considers all of Jerusalem to be its "eternal and indivisible" capital.

The Palestinians see east Jerusalem as the capital of their promised state. They oppose any attempt to widen Israeli control over the sector, which was captured in the Six Day War of 1967 and later annexed in a move never recognised by the international community.

The Elders' visit came after they held talks in the West Bank and Gaza Strip, Egypt, Syria and Jordan aimed at bolstering regional peace efforts.

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