The French division of multinational Veolia has dropped out of the controversial Jerusalem tramway project in favor of an Israeli bus operator, a spokesman for the group told AFP on Monday.The French section of engineering group Veolia was prompted to pull out of a light rail project that cuts into annexed East Jerusalem and links Jewish settlements with the city, under pressure from pro-Palestinian groups, Israeli company Dan said.

Yoni Yitzhak, spokesman for Veolia Israel, said that the group last month decided to sell its 5% stake in a consortium building and run the city’s tramway project to the Egged bus company. He denied that the company was selling out due to political pressure and threats of trade boycott. ‘All decisions by Veolia Israel are based on financial, not political, considerations,’ he claimed.

Spokesman for Dan bus lines, Eitan Fixman, is now suing Veolia over what is believed to be a broken agreement as the group originally had planned to sell its stake to Dan.

Fixman stated: ‘As Veolia told Dan, at some point in 2009 or thereabouts, because of heavy political pressure applied to French Veolia by pro-Arab and anti-Israel sources to halt its activity in the [occupied] Jerusalem area, and in light of legal proceedings instituted against French Veolia beforehand in connection with the [Occupied] Jerusalem light rail, Veolia decided to end its involvement in the project,’

Palestinians hope to derail the $1 billion tramway fearing that the plan will further strengthen Israeli control over occupied East Jerusalem. They pledged a French court to force Veolia and Alstom out of the light rail project and have called on Arab countries to end contracts with the two multinationals, Gulf News reported.

The 14-kilometre line runs from Jerusalem to the largest of several Israeli colonies built in the mostly Arab eastern part of the city. Palestinians say Israel is creating more facts on the ground with the tramway.

Israel considers East Jerusalem, which it captured and annexed in the 1967 Six-Day war, to be part of its ‘eternal, undivided’ capital. The international community does not recognize Israel’s claim.