MPs attacked Israeli settlement policy during an emergency meeting held by Palestinian groups in Parliament.

Labour MP Sir Gerald Kaufman, a veteran foe of Israel, told the meeting, held by the Palestine Solidarity Campaign and Friends of Al Aqsa: "The Jews running Israel are the most stupid Jews because they do not see the population equation will mean that unless there is a settlement granting Palestinians their own state, Palestinians will wait it out.

"When they outnumber the Israelis there will... be a one-state solution and that will not be Israel."

He added: "Just as Lord Ashcroft owns most of the Conservative party, right-wing Jewish millionaires own the rest of the Conservative Party and they will not alienate those Jewish donors by saying one critical word of Israel."

He said that the current Israeli government was the "worst" in history and called Foreign Minister Avigdor Lieberman a "foul racist".

Tony Benn said that the Holocaust was used as an "excuse to justify what happened after the war when the state was set up. The form it has taken today is to seize as much of the West Bank as possible and to engage in ethnic cleansing of the Palestinians."

Meanwhile, more than 200 protesters demonstrated outside a meeting where the mayor of Jerusalem, Nir Barkat, insisted that building would continue in east Jerusalem.

Mr Barkat said at Chatham House that Israel did not mean to insult America when announcing 1,600 new homes in Ramat Shlomo. "The government didn't say there was a freeze in the city of Jerusalem. What's the problem? It could have been wiser to wait a bit. Nobody meant any harm. "

He spoke about plans to build 50,000 apartments, two-thirds for Jewish neighbourhoods and one-third for Arab neighbourhoods and his development of a "win-win strategy.

"There is room in Jerusalem for everybody," he said. "Some neighbourhoods in east Jerusalem are not planned properly, which forces us to re-plan for the benefits of Arab residents."

He said that Jews had a "historical right" to claim Jerusalem as their capital, and defended demolitions and evictions of illegal tenants in Arab areas.