JERUSALEM, Israel - Secretary of State Hillary Clinton joined international criticism against the Israeli demolition on Sunday of a historic but derelict hotel in eastern Jerusalem.

She said tearing down the Shepherd Hotel was a "disturbing development" that undermines efforts to achieve a two-state solution to the Israeli-Palestinian conflict.

The hotel was built in the 1930s by the mufti of Jerusalem Haj Amin al-Husseini, a close ally of Adolph Hitler and purchased in 1985 by an American Jewish millionaire who plans to build 20 apartments for religious Jewish families.

The European Union, Egypt and Jordan also condemned the Israeli demolition.

The E.U.'s foreign policy chief Catherine Ashton "strongly condemned" the demolition and what she called the "planned construction of a new illegal settlement" saying that settlements "constitute an obstacle to peace."

And the Egyptian Foreign Ministry argued that continuing Israeli settlement would lead to "a new explosion of violence" in the Palestinian territories.

The hotel has become another symbol in the battle over Jerusalem. 

Palestinians want eastern Jerusalem to be the capital of a future state and much of the world says Israel shouldn't build there. But Israel says it won't stop building. Many Israelis believe the Bible promised the city as its eternal, undivided capital. 

Israeli Prime Minister Benjamin Netanyahu's office issued a statement on Monday saying the actions taken at the hotel site were undertaken by private individuals in accordance with Israeli law and the government was not involved.

"There should be no expectation that the State of Israel will impose a ban on Jews purchasing private property in Jerusalem. No democratic government would impose such a ban on Jews and Israel will certainly not do so," the statement said.
 
"Just as Arab residents of Jerusalem can buy or rent property in predominantly Jewish neighborhoods in Jerusalem, Jews can buy or rent property in predominantly Arab neighborhoods in Jerusalem," it added.