A private Israeli group says it has taken over two East Jerusalem buildings after buying them from Palestinians.
Elad says the buildings were purchased several months ago
Adi Mintz, a director of the Elad organisation, said Jewish settlers had moved into the buildings in Silwan district and on the Mount of Olives.
Reports say local Palestinians have responded angrily and are calling on the new residents to leave.
Elad's aim is to set up Jewish outposts in East Jerusalem, which has been occupied by Israel since 1967.
The non-profit organisation says it purchased the two buildings a few months ago.
Mr Mintz says Elad's goal is to create an irreversible situation in what he called the "sacred basin" around the Old City.
Israeli security guards armed with assault rifles and walkie-talkies have take up positions on the buildings, the Associated Press News agency reported.
Previous purchases of this kind by Jewish organisations have been met with angry Palestinian protests.
Local anger has been directed at members of the two Palestinian families which had owned the Mount of Olives property, although relatives say the sales were to Arabs who must have sold the buildings on.
A restaurant belonging to one family member was torched and another person was abducted to Ramallah for interrogation by the Palestinian security forces, according to a report in the Haaretz newspaper.
Land ownership in East Jerusalem is a particularly sensitive issue. The majority of its residents are Palestinian, and Palestinians hope to make it their future capital.
Israel says the whole of Jerusalem is its indivisible capital.
East Jerusalem, like the West Bank, has been occupied by Israel since 1967.
Israel annexed east Jerusalem in 1981, but its claim to the area is not recognised internationally.
Under the plan for further unilateral disengagement proposed by acting Prime Minister and Kadima party leader Ehud Olmert, East Jerusalem and large areas of the West Bank, especially the area around the city, would remain under Israeli control.