Israel's Supreme Court ruled Monday that the prominent Husseini family could not claim ownership of a landmark and now derelict building in eastern Jerusalem.
The Shepherd Hotel was built in the 1930s and served as the home of notoriously anti-Semitic and Nazi supporter, the Jerusalem grand mufti Haj Amin Husseini.
It was declared "absentee property" by Israel after eastern Jerusalem was liberated from Jordanian occupation by Israel in 1967.
The title was then transferred to an Israeli firm, which sold it in 1985 to Irving Moskowitz, a Florida businessman and patron of Jewish land-rights in Israel.
In 2009, Israel's Jerusalem city hall approved a project to replace the building with a block of 20 apartments. Monday's ruling paves the way for the project to proceed.
The Supreme Court said too much time had passed since Israeli authorities had transferred the property to private developers for a legal challenge to be brought.
Mona Husseini, heir to the property and Husseini's granddaughter, criticized the ruling saying "This property, which is legitimately ours, represents the Palestinians' rights to their land and to Jerusalem."