The ruins of Lifta are the final remains of the Palestinian hamlets that fringed Jerusalem until 1948. Now plans to bulldoze them are causing outrage

In the soft golden light of a late spring evening, as yellow flowers are beginning to bloom on giant cacti, Yacoub Odeh climbs up through knee-high grass to the ruin that was his childhood home. For a man in his eighth decade, he is surprisingly nimble as he navigates ancient stones that litter the ground. But behind his light step is the weight of painful memories of a lost youth and a fading history.

"Here is my house," he says, sitting on the remains of a stone wall in whose crevices wild flowers and saplings cling. "Now only the corners remain. Here is the taboun [outdoor oven] where my mother used to bake bread. The smell!"

With distant eyes, he describes an idyllic childhood in a place he calls paradise, where families helped one another and children played freely amid almond and fig trees and on the rocks around the village's natural spring.

The place is Lifta, an Arab village on the north-western fringes of Jerusalem, for centuries a prosperous, bustling community built around agriculture, traditional embroidery, trade and mutual support. But since 1948, shortly before the state of Israel was declared, it has been deserted. The population, according to the Palestinian narrative of that momentous year, was expelled by advancing Jewish soldiers; the people abandoned their homes, say the Israeli history books.

Lifta was one of hundreds of Arab villages taken over by the embryonic Jewish state. But it is the only one not to have been subsequently covered in the concrete and tarmac of Israeli towns and roads, or planted over with trees and shrubs to create forests, parks and picnic areas, or transformed into Israeli artists' colonies. Some argue that Israel set out to erase any vestige of Palestinian roots in the new country.

Now, 63 years on, the ruins of Lifta are finally facing the threat of bulldozers and concrete mixers. A long-term proposal to sell the state-owned land for the construction of luxury housing units and a boutique hotel on the site is awaiting the authorities' final approval. It has caused a furore. Opponents of the plan include those who believe Lifta should be preserved as a monument to history; those who want to retain its charming environs as a rambling spot; and those – Odeh among them – who insist that one day they will return and reclaim their homes.

For many Palestinians, Lifta is a symbol of the Nakba, literally the "catastrophe", of 1948 in which 700,000 people were dispossessed. It embodies their longing for their land, and their bitterness at their continued refugee status. It is, wrote Palestinian author Ghada Karmi in a letter to the Los Angeles Times, "a physical memory of injustice and survival".

The development plan was approved by the Jerusalem municipality five years ago, but earlier this year the Israel Lands Administration – the state agency that took ownership of Lifta's land under the Israeli law governing property deemed to be abandoned – began marketing the plot to private developers. A legal challenge stayed the tender process, but a decision is due any day on whether to proceed. The proposal is for 212 luxury housing units, expected to be advertised to wealthy expatriate Jews, a chic hotel and shops, and a museum. It suggests that some of the ruins be restored. But Lifta as a sanctuary and de facto heritage site will be lost.

Ultra-orthodox Jewish teenagers swimming in the village spring in the ruins of Lifta. Photograph: Quique Kierszenbaum

Shmuel Groag, one of the architects of the original proposal, has since reversed his position and has backed the campaign to preserve the ruined village. "I have changed my mind about conservation in general, and about Lifta in particular," he says. The site, he argues, should be "frozen". Others have appealed to Unesco to declare Lifta a world heritage site, saying that work must begin to halt further decay and the theft of valuable stones from the ruins. Alongside the ramblers, drug-users and illicit lovers frequent the ruins. Crowds of ultra-orthodox Jewish teenage boys, stripped to their underwear, swim in the spring, and light barbecues on the rocks. Graffiti scars many of the fragmented walls. For Odeh, this is distressing. "Why should they have free access to my home when I am stopped by security guards and questioned about my right to be here," he asks. "When I see these people coming here, I feel sorrow and anger."

The remains of the village are bounded by roads, along which traffic rumbles to and from Tel Aviv and Jerusalem's suburbs and settlements. On the ridge above Lifta, concrete mixers and diggers are at work on a high-speed rail link to Tel Aviv; deep in the valley below is a guarded complex, said to be the site of the Israeli government's underground nuclear bunker. Out of sight of Lifta's ruins, but built on its former farmlands are the Knesset (Israel's parliament), the supreme court, the Hadassah hospital, the Hebrew University and the city's central bus station.

In 1948, the village owned 1,200 hectares but they have long gone, along with olive, fig, apricot, almond, plum, pomegranate and citrus trees plus the fields of spinach, cauliflower, peas and beans that gave Lifta its prosperity. "Life was rich," recalls Odeh. "The spring watered the village gardens. We had more olives than we needed so we sold them and the oil in Jerusalem."

As we walk amid the ruins, Odeh points out the old landmarks. "Here was the mosque. This was the sheriff's house. Here was the olive press. There is the house where I was born, and where my father was born. Over there is the cemetery. This was the sahn [courtyard] where people shared happy occasions and sorrowful occasions. Here I breathed my first breath. The first water I drank, I drank here." It is painful, he says.

He points out what is remaining of the beautiful architecture of the houses, with arched windows, columns and graceful balconies. Over a door, a lintel is inscribed with Arabic writing. Enter in safety, it says; the owner of this house is God. "The people of the village cut the stones and built their houses themselves. They were proud of that. They helped each other build and harvest the olives. The village lived as a family, one family."

But in 1948, when Odeh was eight years old, the bucolic life of Lifta came to an end. At the gateway to Jerusalem, Lifta was strategically important to the advancing Jewish troops. A series of violent skirmishes caused fear and panic, he recalls. There was firing and attacks from both sides. And then came the day his family left.

"My mother was preparing a fire to warm the house. I was with my little brother. The gangs began to shoot in the direction of Lifta. My brother was shouting: 'Mama! Mama! They're shooting us.' My mother took us inside and put us in a corner. The people of Lifta were crying to one another."

Odeh's father, then 33, carried the youngest of the eight children, and the family crossed the valley and climbed up to the main road to Jerusalem. His mother took the key to the house but they left everything they owned. "We had nothing but the clothes we were wearing. We had everything – and in one moment we had nothing. We became beggars." As the villagers left, Jewish soldiers blew holes in the roofs of the houses to make them uninhabitable.

Odeh's father stayed in Lifta for a few more days. After boarding a truck heading away from the village, the rest of the family slept under fig trees. They spent the following two years in Ramallah before moving to Jerusalem's Old City. His father, a broken man, developed stomach problems and died at the age of 35. His mother suffered from asthma from the time she left Lifta until her death. Many of the 3,000 residents of Lifta scattered across the West Bank and beyond to Jordan, but a core still live in East Jerusalem within a few kilometres of their former homes. Odeh himself later joined the armed resistance against Israel and spent 17 years in prison.

Now, in his twilight years, he is as impassioned as ever about his home. "We will never forget nor forgive the destruction of our village. Lifta is in our memory and in our history. It is our fathers' and grandfathers' graveyard. The spring, the trees, the land – we will never forget it."

He is unshakeable in his belief in the Palestinians' right to return to their homes – something that cannot be countenanced by Israel because it would threaten the state's Jewish majority and hence its Jewish nature. "We still dream of coming back," says Odeh. "I'm sure the time will come to return to Lifta, to my home." There can be no lasting peace until the refugee issue is resolved, he adds. But he knows time may be running out. "Lifta is an eyewitness to history, to what happened in the Nakba. If we can't come back, then leave the village to this history."