NEW YORK - Inside a glittering New York City ballroom on Wednesday night, several hundred people turned out to support the construction of Jewish housing near an Arab-populated part of east Jerusalem. Weeks after the Obama administration reiterated its condemnation of such building, some 300 guests found cause for celebration: Days earlier, the Beit Orot yeshiva got permission from the Jerusalem Municipal Planning and Construction Committee to build four residential buildings adjacent to its property on the Mount of Olives, near the Arab A-Tur neighborhood. The $250-a-plate dinner, hosted by American Friends of Beit Orot, was expected to raise at least $75,000 for the yeshiva, which according to its Web site, "is at once defending the sacred traditions of our nation, the physical security of Eretz Yisrael and the integrity of Yerushalayim as the undivided capital of Israel and the Jewish people." But the fund-raiser, and others like it, have thrust into the limelight an ongoing debate over tax-exempt American donations to Israeli settlements and Jewish housing in east Jerusalem that contradict American foreign policy. "We're very much disturbed," said Ori Nir, a spokesman for American for Peace Now. "Any kind of support for settlement activity, whether it's material or moral or political or otherwise is wrong. It is bad for Israel, bad for the United States and bad for Middle East peace." While estimates vary, such groups made roughly $33.4 million in tax-exempt donations to settlements or organizations promoting settlement building between 2004 and 2007, according to a tabulation by David Ignatius in The Washington Post earlier this year. Among them are groups including Ir David, which promotes Jewish development in east Jerusalem and raised $2.7m. in 2006, $1.2m. in 2005 and $8.7m. in 2004 through its affiliate, Friends of Ir David. Another, the Hebron Fund, donated $967,954 in 2006 and $860,637 in 2005. This past fall, the Hebron Fund made headlines for hosting a fund-raiser at the New York Mets' Citi Field on November 21. Eleven organizations, including Jews Against the Occupation-NYC and the American-Arab Anti-Discrimination Committee, asked the Mets to cancel the event, but it took place anyway. "The New York Mets will be facilitating activities that directly violate international law and the Obama administration's call for a freeze in settlement construction," the organizations wrote in a letter sent to the baseball club. In recent months, donations to the Od Yosef Chai yeshiva in the Yitzhar settlement came under scrutiny after a rabbi at the yeshiva said it is permissible to kill Palestinian babies because of "the future danger that will arise if they are allowed to grow into evil people like their parents." Another rabbi at the yeshiva reportedly encouraged incitement against Arabs and Israeli security forces seeking to enforce the government's settlement policies. According to investigative reporter Philip Weiss, on his Web site, mondoweiss.net, the yeshiva received $27,000 from the New York-based Central Fund of Israel in 2007 and 2008. In 2006, CFI raised $8m. The American-Arab Anti-Discrimination Committee has filed multiple complaints with the US Treasury Department and Internal Revenue Service over organizations that fund settlement development in the West Bank. In an October press release, the committee's National Executive Director Kareem Shora said, "The United States should work to enforce its stated policy on illegal settlements and not provide tax incentives for organizations that jeopardize our national interests and peace and security in the Middle East." Mainstream Jewish organizations have rejected that strategy, despite fiscal and moral concerns. Those following the issue say the donations are marginal compared to the billions of dollars the Israeli government invested in settlement development, roads and security since the 1970s. A legal challenge would be tricky, said Nir American for Peace Now, who also questioned the efficacy of such a strategy. "I think that most people who do give to settlements would do so regardless, whether they get a tax break or not, you can pretty much count on it that they'll do it," Nir said. Rabbi Eric Yoffie, president of the Union for Reform Judaism, acknowledged that a certain segment of American Jewry is committed to the settlements, but he stressed the issue is not how the foundations are policed, rather what the Israeli government does to resolve the settlement issue. "Ultimately, settlement policy is going to be determined not by individual contributors here," he said. "It will be determined by the actions of the government of Israel. My own view is that that's what we need to focus on." While pro-settlement foundations might be personally distressing to him, he said he did not support efforts to strip such institutions of their tax-exempt status because of the precedent it could set. "I think there's no end to that. It's a very dangerous road to go down," he said, adding, "It's not what's ultimately going to be effective in changing policy." Dan Fleshler, author of Transforming American's Israel Lobby and an activist in the American Jewish left, took an opposing view, saying the issue was overdue for attention from mainstream Jewish organizations. "These settlements are against longstanding American policy, and in violation of international law, and they are against both American and Israeli interests," he said. "So you add all of those up and it becomes outrageous that American taxpayers are subsidizing them. "Whether or not they are illegal, this is an important American policy matter and it deserves our government's attention," Fleshler said.