BBC Correspondent Jeremy Bowen reports from Jeruslaem on the riot

Israel television said Mr Olmert gave the settlers 24 hours to evacuate the site, on the grounds that they do not have building permits.

An Israeli court has also ordered the settlers to stop building.

The mayor's order came on Tuesday after senior members of the Palestinian Legislative Council were beaten by Israeli police in East Jerusalem resulting in at least one man being taken to hospital.

They were attempting to stop the Jewish settlers from constructing the homes.

The settlers, from an ultra-nationalist group, aim to settle the old city with Jews and began the latest round of construction in response to the nearby murder of a Jewish student earlier in the month.

They laid foundation stones and erected tin sheds but Palestinian and Israeli groups gathered to protest against the building on Tuesday morning and a group of Palestinian MPs, including leading cabinet ministers, later tried to get into the site to join them.

'They knew who we were'

Police push Palestinian Legislative Councillor Azmi Shuaibi

They were led by Palestinian Council member Abu Alla, who was one of the founding fathers of the peace process.

Hanan Ashrawi, a Palestinian minister, said the Israeli paramilitary police who stopped them knew who they were.

Abdel Saleh, the Palestinian Minister of Agriculture, was knocked down in the fray.

Eventually the police allowed the group through.

When Palestinians tried to occupy one of the settlers' sheds, a riot started.

The BBC's Middle East Correspondent, Jeremy Bowen, said: "Every square inch of Jerusalem is contested territory.

"The Palestinians view the settlement as a deliberate provocation. They believe the settlers operate with the tacit approval of the Israeli Government.

"The collapse of the peace process is ratcheting up the tension here every day.