Akiva Eldar hits the nail on the head:
What could they possibly want from us? That was the combined reaction of the president, the mayor, the cabinet ministers and the head of the opposition. After all, they said, Gilo is at the heart of the Israeli consensus. What does that consensus mean? Reminder: In June 1967 Israel annexed to Jerusalem some 70 square kilometers of West Bank territory, including 28 Palestinian municipalities and villages that were never considered part of the city. When Jordan controlled Jerusalem, it was six square kilometers, including the Old City, whose territory is no more than a single square kilometer.
Since 1967, some 30 percent of East Jerusalem land has been appropriated for the construction of new neighborhoods for some 200,000 Israelis. Indeed, there is consensus among Israelis that in a peace agreement that would include exchange of territory, Gilo would remain under Israeli sovereignty. But not in a unilateral step that would not be recognized by any other country. Around the world, there is wall-to-wall agreement that East Jerusalem is at best disputed territory; in the Arab world, the consensus is that it is occupied territory.
Read his whole column about the status of Jerusalem, from today's Haaretz.