The Vatican forcefully criticized Israel today for its handling of a heated dispute over construction of a mosque next to a Christian shrine in Nazareth, saying that allowing the mosque to be built is likely to "foment division" between Christians and Muslims.

The statement came as Muslim leaders in Nazareth unveiled the cornerstone to the mosque on disputed land adjacent to the Basilica of the Annunciation, which, along with the most important churches in Jerusalem and Bethlehem, remained closed for the second day in a protest organized by local Christian leaders.

"The decision of the Israeli government seems to lay the basis for future contrasts and tension between the two religious communities, Christian and Muslim," said the statement from a Vatican spokesman, Joaquin Navarro Valls. "The political authorities have a great responsibility in this case, because rather than favoring unity they are creating the foundations to foment division."

The Israeli Foreign Ministry issued a swift reply in Jerusalem, saying Israel "utterly rejected" the Vatican's criticism, according to the Associated Press. In a reference to long-standing accusations that the church has been guilty of antisemitism, the ministry added that the Vatican statement "unfortunately recalls the ancient practice of pointing the finger at the wrong cause."

Sources close to the Vatican echoed misgivings recently expressed by at least one local Christian leader that the dispute could jeopardize a stop in Nazareth that Pope John Paul II has scheduled in March as part of a pilgrimage to the Holy Land.

Pilgrims found doors locked Monday and today at three of Christendom's holiest shrines: Jerusalem's Church of the Holy Sepulcher, the Church of the Nativity in Bethlehem and the Nazareth church built on the spot where Christian tradition says the archangel Gabriel gave Mary the news that she would give birth to the son of God. The closing was decided in a rare show of unity between Roman Catholics and Orthodox Christians, including Greek and Armenian denominations, to protest the compromise solution the Israeli government had offered.

Millions of Christians are expected to visit Nazareth and other Holy Land sites on millennium year pilgrimages, and Christian leaders there had hoped to turn a half-acre plot of land next to the basilica into a plaza to accommodate them. But Muslims in the little Israeli town where Jesus is said to have spent his boyhood said the land was theirs. They made plans to erect a huge mosque that would have been taller than the basilica just a few yards away.

Israeli authorities, wary of a situation that already had prompted riots last Easter, decided last month to allow a smaller four-story mosque that would occupy one-third of the plaza. But the Rev. Ciro Benedettini, a Vatican spokesman, said the church approved the closure undertaken by local Christian leaders and that today's statement was aimed at giving "formal support" to the initiative.

Most of the contended land, he said, belongs to the state of Israel, adding that the government should have claimed ownership and denied the license to build the mosque.

"In this way, they're just creating more tension between the two groups," he said. But, he added, "dialogue is continuing."

Aharon Lopez, the Israeli ambassador to the Vatican, said the matter is being handled by authorities in Israel and that the government was "trying to find a workable compromise to ease tension and let both communities live in harmony, while allowing pilgrims to visit in a safe and peaceful atmosphere."

CAPTION: A Muslim child stands among praying adults in Nazareth before leaders unveiled a cornerstone for a mosque, a move the Vatican criticized.

CAPTION: A Greek Orthodox priest and Israeli policeman visit a church in Jerusalem that was closed in protest.

CAPTION: This Muslim marker, placed near a Christian shrine, has increased religious tension in Israel.