Israel's Supreme Court on Thursday turned down for the second time a request for a retrial over the fate of a building owned by settlers in the flashpoint east Jerusalem neighbourhood of Silwan.
It also reprimanded the Jewish settlers living there for failing to heed earlier court rulings demanding that they evacuate the building, which is located in the heart of a densely populated Palestinian neighbourhood.
In 2007, a local court ordered the settlers evicted from the building and its entrances sealed, after determining that the structure was built without the appropriate permits.
But the order has never been implemented.
In their petition, the settlers claimed the authorities were discriminating against them, citing the fact that demolition orders against hundreds of Palestinian homes in the same neighbourhood were not being reinforced.
They used the same argument in 2010.
Mayor Nir Barkat has baulked at carrying out the order against the illegally built structure while he is being pressed to freeze demolition orders on about 200 Palestinian homes built without permits in the same neighbourhood.
Last November, Israel's attorney general told Jerusalem city council to implement the 2007 court order and seal the seven-storey building which is home to eight families, or around 50 people.
In its decision, the court reprimanded the settlers for failing to adhere to the original ruling, stressing that even though the municipality had yet to seal the building, it did not exempt the residents from doing so themselves.
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The Palestinians see east Jerusalem as the capital of their promised state.
They oppose any attempts to extend Israel's control over the part of the city which was captured in the 1967 Six Day War and annexed shortly afterwards in a move unrecognised internationally.
Israel considers the whole of Jerusalem to be its "eternal and indivisible" capital.
A settler spokesman dismissed Thursday's ruling, saying it would have no practical impact.
"It is not as though yesterday the building was recognised, and today it is not," said Eldad Rabinowicz, pointing out that the municipality had "thousands of demolition orders for Arab-owned buildings in east Jerusalem, and in the past year has not acted on even one of them."
But Hagit Ofran of Peace Now slammed the municipality for "continuing to ignore the courts' orders, and enabling this illegal and provocative settlement in Silwan, which constitutes a point of daily friction and a heavy security burden upon Jerusalem police.
"This by itself is enough to justify the eviction of the settlers," she told AFP.
A spokesman for the municipality gave no indication that the city council would act on the Supreme Court decision.
"The case was one between the courts and private residents to which the municipality was not a party," Stephen Miller said.
"The municipality continues to uphold the rule of law evenly throughout all parts of Jerusalem."