"It is damaging the peace between Palestinians and Israelis," said Rafiq Husseini, chief of staff to Palestinian president Mahmoud Abbas. "They have to halt their settlers or they will not have peace with us ever."
Israeli officials argue they are following the law. A police spokesman said the eviction was in accordance with the court decision.
The story of the al-Kurd house is long and disputed and involves complicated legal and political battles. Mohammad al-Kurd and his parents were one of several families of Palestinian refugees from the 1948 war who were housed in the Sheikh Jarrah district in 1956, a time when it was under Jordanian control.
His family came from Jaffa, near Tel Aviv, and his wife's family was from Talbeyieh in west Jerusalem. Under an agreement with the UN agency for Palestinian refugees the families gave up their food ration cards and were given the properties under 33-year leases, which would revert to full ownership as long as they paid a token rent and kept the properties in good order.
It appears, however, that the land was previously owned in the late 19th century by Jews - it is close to an old Jewish tomb long popular with pilgrims. In 1967, when Israel captured east Jerusalem, the property was taken by the custodian for absentee property, an Israeli institution that had also taken control of all property left behind by the 700,000 Palestinians who fled or were forced out in the 1948 war.
Two Jewish groups began a legal process to reclaim ownership of the property and in 1972 the court gave control of the land to the heirs of two rabbis who appeared to be the 19th century owners.
The al-Kurd family say their Israeli lawyer made the agreement without their knowledge.
The couple became 'protected tenants', liable to pay rent to their new Israeli landlords but they refused on principle.
"Why should I pay rent for my own house?" said Fawzieh al-Kurd, 57, who sat yesterday by a tent on a patch of wasteland not far from her house. In 2001, several settlers began to occupy an outer part of the house and remain in place today – despite court orders to evict them.
As soon as the couple was evicted at 4am on Sunday, a group of Jewish settlers moved in. They remain there today while armed police officers and private security guards patrol the surrounding area where several settler families live.
"The Israeli government did what they wanted to do," said al-Kurd. "Because we are Palestinians they have to humiliate and insult us like this? Don't we deserve to live in peace on our land?"
The United Nations relief and works agency (UNRWA) said it opposed the eviction of the al-Kurds and of all Palestinian refugees.
"Throwing an elderly couple out of their house in the early hours of the morning is shameful," said Chris Gunness, a spokesman. "UNRWA will continue to offer the family assistance but nothing we offer can compensate for the loss of a home."
Although Israel's absentee property laws were applied on the al-Kurd family in favour of the original Jewish owners they are rarely, if ever, applied on properties in Israel that were owned by Palestinians before the 1948 war.
Rabbi Arik Ascherman, of the Israeli group Rabbis for Human Rights, acknowledged that the al-Kurd land may have belonged to Jews before 1948 but told the Associated Press: "Do any of us Israelis really want to go back to the situation where everyone owns what they owned in 1948?"
Daniel Seidemann, a prominent Israeli human rights lawyer, said it appeared the al-Kurd family had no legal recourse left to hold on to their house. But he noted that their home is in an area much coveted by powerful Jewish settler groups.
"This is part of the areas targeted by the settler organisations to surround the old city of Jerusalem," he said.
A scheme had been lodged which showed the settler groups hoped to eventually raze the houses they occupy and to build a much larger settlement complex.
"There is a legal case that was decided on the al-Kurd family," he said. "This does have political ramifications in that there is a concerted effort to take these targeted areas and reduce the Palestinian presence. Clearly, the al-Kurd family has been a victim."