The neighborhood will be bordered by other Jewish homes, as it is part of a chain of majority-Jewish neighborhoods that includes French Hill and the Hebrew University on Mount Scopus.
The project is starting small, with 18 homes in three three-story buildings. The homes are meant for married men learning in the yeshiva and their families and are expected to add to the growth of the campus.
Backers of the Mount of Olives project hope the buildings will be up within a year.
The project has moved forward despite Arab demands that Israel give up much of Jerusalem. The Arab world insists that the parts of Jerusalem that were occupied by Jordan from 1949 until 1967 should make up the capital of a Palestinian Authority-led new Arab state.
Arab leaders have received support from the European Union and the Obama administration, both of which have criticized Israel for allowing Jews to build throughout the capital city. Israel unified Jerusalem decades ago, and sees the city as a single entity.
Israeli leaders say the capital will remain united. Jerusalem is the focus of Jewish prayers and hopes since ancient times, conquered by King David from the Jebusites over fifteen hundred years before the birth of Mohammed.
