In a narrow alley in Shuafat refugee camp, in East Jerusalem, slender plastic water pipes snake down the outside of buildings to the ground and to the electric pumps buried at ground level. It is noon and they are warm to touch. A tap by the pump is turned, but it coughs empty.

For almost a month, many of the Palestinian residents have been largely without any running water, having to buy drinking water in bottles or from private tanking firms. In the last two weeks, after a ruling by an Israeli court gave the local water company 60 days to find a solution to the problem, the hydraulic pressure was reinstated but the residents say at half the amount they previously received. Most days the water comes between 3am – 8am. Even now a third of the camp, according to one estimate, is still largely without water.

The problem now is that even with a partially restored supply, it can take three hours for a family's tank to fill. For most that means waking in the early hours to turn on the pump and ensure a guaranteed supply of water. In a city of parks with sprinklers, where running water is taken for granted, the situation in Shuafat and its surrounding neighbourhoods is a troubling anomaly. The residents of these largely Palestinian neighbourhoods are bound in an administrative and legal nightmare.

While the neighbourhood is part of Jerusalem, and its residents Jerusalemites, the building of Israel's separation wall has cut Shuafat off from the rest of the city which must be accessed through a military checkpoint. Israeli services, including rubbish collection, are few and far between. The water infrastructure is badly in need of improvement.

On 4 March, according to residents, the water supply simply cut off. According to the local Israeli water authority, the supply collapsed because the dilapidated system of pipes was insufficient to handle a growth in population that has seen the camp expand from 3,000 to 25,000 residents over the decades. The wider area affected by the water shortages has some 70,000 inhabitants – although numbers are contested.

"It has improved a bit in the last week, but there's still not enough," says Mahmoud Ali, aged 57, waiting for a bus. Able to afford the 200 shekels (£34) to pay a private supplier to fill up his tanks, he has been able to shower once every three days, unlike some families forced to shower only once a week.

A boy carries water to his house in Shuafat. Residents of the area are caught in a legal no-man s land: the district is technically part of Jerusalem municipality, but on the other side of the West Bank barrier, so Israeli services there are sparse yet Palestinian suppliers are barred from operating. Photograph: Sebastian Scheiner/AP

In his office Muhanid Muselmi, a member of the camp's popular committee, says the problem has deepened over the last year. "The supply started declining seven months ago. It was in the last month and a half that it reached crisis where all of the residents were affected by the shortages. There would be no water for three days at a time, then it would come for a couple of hours. When it started people thought it was the pipes, they blamed the camp's leadership or other people in the camp or builders in the neighbourhoods around for taking the water."

Israeli officials have said they are at a loss to explain the cause of the crisis – speculating that an exceptionally dry winter may be to blame. But Muselmi suggests another reason: "We believe the water company reduced the pressure."

All of which has been denied in statements during the water crisis by Hagihon, the water company, including to the Israeli paper Haaretz, adding that despite the residents not being its customers, water is still supplied out of "humanitarian" concern. It said: "Water from Hagihon is flowing as usual to the neighbourhoods on the other side of the separation fence, but the water infrastructure and sewer and drainage systems are not adequate for the size of the population living there and extensive development work is needed to bring the infrastructure up to par."

Despite that, strong anecdotal evidence suggests the camp's water supply improves only during the hours when demand in neighbourhoods on the other side of the separation wall is lowest. In an electrical goods store on one of Shuafat's main roads, its walls lined with new washing machines, Mohammed Abu Saleh's trade has plummeted with the water supply. "Between January and March, we saw the sale of goods like washing machines fall by 30%. The first question the people still buying them ask me is how many litres it consumes," he said. Even full water tanks pose a danger to Shuafat's residents. Lacking a proper piped supply, a typical roof holds clusters of tanks for several families, often amounting to 10 tonnes of water perched on poorly constructed buildings.

Shuafat's manifold difficulties neatly illustrate the complex network of structural and administrative problems seven decades of conflict has heaped on East Jersualem. Jordanian authorities and the United Nations established the camp between 1965 – 1966 to house refugees from Jerusalem's Old City and Lydda (now Lod) and Ramle. These Palestinian refugees were joined several years later by other families displaced by the 1967 war during which Israel annexed Jerusalem in its entirety and claimed it as its capital – a claim that has never been recognised by the international community.

Palestinian residents of Shuafat are officially Jerusalem residents and so granted residency permits and freedom of access to the city denied to West Bank ID holders. Shuafat residents also qualify for Israeli healthcare and social benefits. To maintain these rights, Jerusalem ID holders must live full time within the municipality. Few Palestinians with access to the spiritual, historical and economic benefits are likely to give that up – even if it means living in a neighbourhood bursting at the seams.

The Israeli-built West Bank separation barrier seen from Shuafat, East Jerusalem. Photograph: Sebastian Scheiner/AP

Crossing from Pisgat Ze'ev, Shuafat's neat suburban Israeli neighbour, into its rubbish-strewn, potholed streets, the impact of this structural isolation is immediately clear. The rapid expansion of Shuafat's population has seen a boom in property prices and unregulated construction scrambling to meet a demand for cheaper housing – new buildings Israel says it is not obliged to connect to the water network. Human rights agencies disagree.

Johanna Von Toggenburg, an advocacy co-ordinator for Ewash (The Emergency Water and Sanitation-Hygiene Group) – a coalition of 27 agencies working on the water issue, says although the causes of why the water stopped are far from clear, Israel has failed in its responsibility to resolve them. "Shuafat is in the occupied Palestinian territories and Israel must fulfil its responsibility to the human right of water. The Israeli government recognised in 2005 it needed to improve the water network but since then very little has happened."

Shawan Jabarin is director general of the Palestinian advocacy group al-Haq, which last year published a report alleging widespread discrimination in access to water in the occupied territories. Against the background of the stalemate in the peace process, he notes the irony that despite the lack of facilities, including water, in Shuafat and its environs, one of the reasons it is growing by the day - further exacerbating the problem – is because it is where many Arab Jerusalemites can live cheaply and maintain their residency. But it is a tradeoff at a high cost.

"People are living there just to stay living in Jerusalem. The [water] problems are part of a long-term plan to keep Shuafat outside the city and give responsibility to the Palestinian side. They are trying to make the situation impossible."

• This article was amended on 15 April 2014 to restore a description of Pisgat Ze'ev which had been changed during the editing process.