REUTERS - "I declare I will be a loyal citizen of the state of Israel," reads the oath that must be sworn by all naturalized Israeli citizens. Increasingly, they are words being uttered by Palestinians.

In East Jerusalem, which Israel captured from Jordan during the 1967 Middle East war and later annexed, a move not recognized internationally, issues of Palestinian identity are layered with complexity.

While Israel regards the east of the city as part of Israel, the estimated 300,000 Palestinians that live there do not. They are not Israeli citizens, instead holding Israeli-issued blue IDs that grant them permanent resident status.

While they can seek citizenship if they wish, the vast majority reject it, not wanting to renounce their own history or be seen to buy into Israel's 48-year occupation.

And yet over the past decade, an increasing number of East Jerusalem Palestinians have gone through the lengthy process of becoming Israeli citizens, researchers and lawyers say.

In part it reflects a loss of hope that an independent Palestinian state will ever emerge. But it also reflects a hard-headed pragmatism - an acknowledgement that having Israeli citizenship will make it easier to get or change jobs, buy or move house, travel abroad and receive access to services.

Israeli officials are reluctant to confirm figures, but data obtained by the Jerusalem Institute for Israel Studies indicates a jump over the past decade, rising from 114 applications in 2003 to between 800 and 1,000 a year now, around half of which are successful. On top of that, hundreds have made inquiries before the formal application process begins.

Interior Ministry figures obtained by Reuters show there were 1,434 applications in 2012-13, of which 189 were approved, 1,061 are still being processed and 169 were rejected. The remainder are in limbo.

Palestinians who have applied do not like to talk about it. The loyalty oath is not an easy thing for them to sign up to and becoming a naturalized Israeli - joining the enemy - is taboo.

"It felt bad, really bad," said a 46-year-old Palestinian teacher who took the oath a year ago. Despite her reservations, she knew it was right for stability and career prospects.

"We just want to live our lives," she said. "At the end of the day, politics gets you nowhere."

Deeper roots

For many East Jerusalemites, part of the fear is that Israel could revoke their blue ID at any time since retaining it depends on maintaining a "center of life" in Jerusalem. Spend too much time abroad or working elsewhere and the ID could go. That is not the case when it comes to citizenship.

"I wanted to strengthen myself in Jerusalem," said the teacher, explaining her reasoning. "It's my homeland. I was born here, I live here and I want to stay here."

Others echoed that sense of a transition that on the one hand feels like a renunciation, but on the other strengthens their ability to keep firm roots in Jerusalem.

"It felt really wrong, I was a bit ashamed because it feels like you're giving up your identity," said a 26-year-old Palestinian ballet dancer, who began the application in June.

"But if I get an Israeli passport I won't be so weak, especially living in East Jerusalem - it's so easy for us to get kicked out."

The ballet dancer told her immediate family who initially reacted with surprise but later accepted her choice. However, some other Palestinians fear their community's reaction to breaking the taboo, so keep their decision even from family and friends.

For many Palestinians, East Jerusalem feel likes a twilight zone. They pay Israeli municipal taxes and receive healthcare and insurance benefits, but are often neglected when it comes to basic city services - from trash collection to new playgrounds and resources in schools and clinics.

The situation is particularly bad in places like Shuafat, a refugee camp a few minutes away from the Old City. Shuafat lies beyond the concrete barrier built by Israel in the mid-2000s, after a wave of Palestinian suicide bombings.

To reach the rest of Jerusalem, Shuafat residents must cue to get through a caged-iron walkway that crosses the barrier. About 100,000 Palestinians live beyond the barrier but are still Jerusalemites.

"The wall brought panic," said Adi Lustigman, a lawyer who represents Palestinians in citizenship applications. "People were afraid that after their homes were put behind it that their residency will be stripped and rights taken away."

Citizenship is seen as a block against that, said Lustigman, who confirmed that applications have shot up in recent years.

Demographic change

The fraught decisions over identity come at a time when political and religious tensions are high in Jerusalem, and yet integration has to an extent been rising.

The most visible sign of that is the city's light-rail system which allows passengers - a mix of ultra-Orthodox Jews, secular Israelis, Palestinians and tourists - quick access to west Jerusalem shopping centers, markets and parks. More Palestinians, albeit in small numbers, have also been moving into predominantly Jewish neighborhoods and even settlements on occupied land.

Khalil Tafakji, a map expert and former member of the Palestinian negotiating team, said political deadlock - the sense that years of striving for an independent Palestinian state were going nowhere - was driving numbers up.

"If this continues, what will the Palestinians negotiate about? They want to negotiate on the land – they have already lost the land," he said. "They want to negotiate for the population and the population is being lost."

Israel, he said, was trying to strengthen its hold on Jerusalem demographically, a process helped by Palestinians taking up Israeli citizenship. Since 1967, around 24,000 Palestinians had made the switch, he said, equivalent to almost 10 percent of the East Jerusalem Palestinian population. The demographic impact is even wider when one considers that the children of those who become Israeli citizens are born Israeli.

Israeli Interior Minister Silvan Shalom rejected the demographic argument. "This will not affect negotiations with the Palestinians, which encompass far greater and wider issues," said Shalom, whose portfolio includes Palestinian affairs.