After a decade of delays, Jerusalem's Palace Hotel project is finally getting under way - soon. At present, the combined five-star hotel and luxury condominium, to be known as The Palace Jerusalem-The Waldorf-Astoria Collection, consists of a huge excavation pit, the ornate arabesque faÃ§ade of a historic building propped up by a steel scaffold, and two enormous cranes waiting for the long-delayed municipal permission to begin construction. A faded sign announces "Waldorf Astoria opening December 2010," while two smaller signs discreetly proclaim the equally unrealistic "Opening 2011."With the Jerusalem Regional Planning and Building Committee's finally authorizing the municipality to issue a building permit for the $107-million project at the end of June, even that optimistic occupancy date seems years off.Being built by IPC Jerusalem Ltd., owned by haredi tycoon Paul Reichmann of Toronto, and members of his family, the project comprises the historic Palace Hotel and the now demolished Mandate-era Customs House in central Jerusalem. Located at the corner of Agron and King David streets, close to the Mamilla shopping and luxury residence complex, the David Citadel Hotel and the Old City, the hotel will have 180 rooms and 40 suites, while the adjoining eight-story residential building will have 28 units - likely to be purchased by wealthy Orthodox Jews from outside Israel seeking a holiday home in close proximity to the Western Wall. Rehov Rabbi David Ben-Shimon, the narrow street between the Palace Hotel and former Customs House, will be transformed into a cobblestone pedestrian zone.The project's Waldorf Astoria label makes it a brand of Hilton Hotels Corp., which operates two hotels in Israel - the Hilton Tel Aviv and the Hilton Eilat Queen of Sheba.The Palace has been subject to many objections over the years. The site is listed for preservation, and the local planning committee instructed the developers to preserve the original hotel's faÃ§ade and lobby in keeping with its listed status.The Palace, which opened its doors to great fanfare in 1929, was the first European-standard hostelry in the city."The Palace Hotel is the best example of affluent Arab architecture on the western side of the city built during the Mandate period," says David Kroyanker, an eminent Jerusalem architect, preservationist and author of more than a dozen books on the city's buildings and neighborhoods, who drew up plans to restore the Palace 30 years ago at the request of then mayor Teddy Kollek. The project is an excellent example of finding a new use for an old structure, he says.But renovations are often more expensive than new construction."I was asked by the Jerusalem municipality to prepare an outline plan for the building, including a new wing, so that the project would be economically viable in terms of the number of rooms," recalls Kroyanker.If anyone understands number crunching, it's Paul Reichmann. Bouncing back from the spectacular $25-billion bankruptcy in 1992 of the family's privately owned company Olympia & York Developments Ltd., Reichmann's International Property Corp. picked up the vintage hotel, which for half a century housed the Ministry of Industry, Trade and Labor, and two adjacent sites for a bargain $20 million. Reichmann, 78, the family mastermind and daredevil entrepreneur, reportedly intends to invest a further $100m., turning the historic property into a five-star hotel.Reichmann hired Ian Bader, a South Africa-born architect who works in the New York office of architect I. M. Pei, to design the Palace. Bader is best known in Israel for his 30-story headquarters for the First International Bank of Israel on Sderot Rothschild in Tel Aviv's financial district.The Palace Hotel symbolizes the checkered history of Jerusalem since the Ottoman Turks lost the city toward the end of WWI. Following the establishment of the British Mandate over Palestine in 1922, Jews and Arabs were vying for dominance in the burgeoning colonial capital. The British, hoping to placate Arab public opinion following the bloody 1921 Jaffa riots, appointed Haj Amin al-Husseini (1893-1974) to the newly created position of Grand Mufti of the Supreme Muslim Council.Just as Husseini restored the historic shrines on the Haram ash-Sharif (Temple Mount) to burnish Jerusalem's status in the Muslim world, so with the Palace Hotel he set out to enhance his personal prestige by creating one of the most impressive structures in 1920s Palestine."The Supreme Muslim Council saw in it a political goal - to show they could construct a building of high quality in a short time," says Kroyanker. "The facade consists of lovely broad arches. On the upper stories are horseshoe-shaped windows and stylized balconies. The style is neo-Mauresque, which was common in Muslim Spain, and in its stone details there is the pendant motif familiar from Mameluke architecture."The hotel's atrium lobby and octagonal skylight provided an element of luxury that didn't exist in Jerusalem at the time, he notes, while the eclectic use of Art Deco plaster reliefs and period lighting adds to the building's unique character. Atop the four-story facade is a monumental stone dedication tablet carved in Arabic calligraphy citing the Koranic verse: "Constructed and built just as they [our fathers] did and built." The reference is to the Dome of the Rock and al-Aksa Mosque.One can only speculate how Paul Reichmann regards the Palace's Islamic symbolism - and the turn of history. As a child he fled his native Vienna after the 1938 Anschluss and spent World War II in Paris and then Tangier, always one step ahead of the Germans, his mother Renee working desperately to save her Hungarian landsmen from the Holocaust. Husseini spent those same years in pro-Axis Baghdad, Rome and Berlin, aiding the Nazi war effort.Life in 1920s Palestine was not as segregated as it is in Israel today. Employing Turkish architect Nahas Bey, Arab contractor Sami Awad with Jewish partners Baruch Katinka and Tuvia Donya, and a team of stonemasons from Egypt, Husseini completed his palatial inn in 11 months - remarkable to those familiar with contemporary Israel's belabored construction sector.During excavation for the foundations, Arab workers uncovered Muslim graves. In his memoirs, Katinka wrote that upon the discovery of the human remains, he rushed to Haj Amin's mansion in Sheikh Jarrah. The mufti, afraid that his political rival Jerusalem mayor Rajib an-Nashashibi would issue a cease work order, told Katinka to quietly rebury the bones elsewhere. The secret got out, however.Shari'a law permits the transfer of graves in special cases with the approval of a qadi (Muslim judge). Husseini, acting as head of the Supreme Muslim Council, authorized the disinterment. But rival factions disagreed and filed a suit against Husseini at the Muslim court, arguing that he had desecrated ancient graves.The mufti's fatwa has reverberated for decades. In 1963 a protest arose among Arab Israelis after Tawfiq Asliya, the qadi of Jaffa, permitted the removal of graves from Tel Aviv's Abad an-Nabi cemetery on the seaside promontory where the Hilton Hotel was subsequently erected. Israel supported the sheikh, ironically citing the mufti's precedent.A further echo is the current controversy over the proposed Museum of Tolerance in downtown Jerusalem to be built atop the deconsecrated Mamilla Cemetery - and across from the once and future Palace.Opening in 1929 at a cost of Â£70,000, the Palace Hotel boasted unheard-of luxuries such as central heating in 145 rooms, 45 of them with baths, elevators and telephone service. Alcohol was served. Run by a Jewish hotelier named George Barsky, the hotel reached its zenith in 1931. That year the mufti convened a pan-Islamic conference there, attracting delegates from as far as India, whose subjects were also chafing under rule of the Raj and the Union Jack. The same year, the even more lavish King David Hotel opened its doors, quickly eclipsing the Palace. Four years later, Husseini's hotel closed.Expropriated by the Mandate government, the Palace was turned into offices. After 1948, the nascent State of Israel "temporarily" housed the Ministry of Industry, Trade and Labor there. The ministry finally relocated to the Givat Ram government district in 2004.Kroyanker's 1983 preservation plan gathered dust until 1997, when bureaucrats decided to make the project more economically viable by including the customs building. The plan was approved in 2000, and Regency Jerusalem associated with Hyatt International submitted the highest bid for the property - $14 million.But then the second intifada erupted, and the project was put on hold yet again. Meanwhile, the area around King David Street increasingly turned into a gilded ghetto with luxury apartments sitting empty most of the year.In Kroyanker's view, the exclusive buildings for wealthy foreigners, even if empty, are "a lot better than dilapidated buildings," which have dominated prime Jerusalem real estate for years. "I am for anything that eliminates blight. Anyway, there is nothing we can do about it because it's a free market, and there are no compulsory residency laws for foreign purchasers of real estate in Israel," he says.While the condo project seems to make shekel sense, the wisdom of Paul Reichmann's "build it and they will come" attitude is less clear. Occupancy rates have rebounded from their dismal lows during the intifada, when some hotels were mothballed, but there is a surfeit of five-star accommodation downtown. Time will tell if Reichmann's gamble synchronizes with the next tourist boom.However handsome Bader's design, the Palace annex risks becoming a luxury ghost town like the nearby David's Village, which comes alive only during Pessah and Succot, while the hotel itself, like London's Canary Wharf initially, could prove to be an investment in the right place but the wrong time.