Flanked by busy highways and tucked into terraced slopes of the Jerusalem hills, a crumbling Palestinian village abandoned more than 60 years ago has become the focus of a struggle over memory and heritage.

The nearly 3,000 people who lived in Lifta fled during the war that accompanied the establishment of Israel. Experts say the old village homes, with their distinctive stonework, along with a mosque, a spring and remains of granaries and olive presses, are unique remnants of a vanished way of life.

But city officials and developers have their eyes on the site, located in a scenic valley at the entrance to Jerusalem. Their plan to integrate the buildings into a luxury housing project has prompted an outcry from preservationists, and exposed painful layers of historical memory and questions about whether and how to document the Palestinian past in Israel.

Israeli activists and former residents of Lifta who now live in East Jerusalem have gone to court to prevent the marketing of lots in the new neighborhood until proper plans to preserve the remains of the village are drawn up, with input from former villagers. But the idea of preserving the village and its way of life, perhaps as a heritage site, means recognizing what Palestinians call their “nakba,” or catastrophe, a reference to their displacement during Israel’s 1948 war of independence.

Palestinian demands for a right of return to their former homes — voiced in recent demonstrations by thousands of Palestinians who marched on Israel’s borders — have been etched in graffiti on the walls of Lifta by descendents of the villagers. But those calls are viewed as an existential threat by many Israelis, and make the marking of the Palestinian past a highly contentious issue.

“In a perfect world where we could achieve a harmonious and sustainable peace in Jerusalem, we should have heritage sites for anyone anywhere,” said Naomi Tsur, the deputy mayor responsible for planning and environment. But, she said, that’s unlikely in the current climate.

Plans for Lifta envision it becoming “prime real estate and a prime tourism site,” in which the original houses will be preserved with new additions, Tsur said. Shops, cafes, crafts studios and hotels are planned along with the homes, while preserving open areas in the valley that extends from the village spring. A key aim is “to bring income to the city,” Tsur added. “There is an economic bottom line here.”

Critics of the plan say that incorporating village houses in new homes for Israelis or Jewish visitors from abroad does not amount to genuine preservation that would document the physical remains of Lifta and the way of life of the villagers, who farmed the rocky hillsides, growing olives, vegetables and wheat.

A group of Israeli preservation experts asserted in an opinion filed in court that the plan did not meet local and international preservation standards.

A 2008 report by the Israel Antiquities Authority called Lifta “a preserve of village architecture and building technology that is gradually becoming extinct,” and concluded that residential development would “seriously harm the . . . rare types of houses preserved at the site.” The report recommended that the housing plan be reconsidered.

But preserving Lifta as it was would mean preserving its Palestinian past, an act that carries unsettling overtones for many Israelis.

“These remains are threatening,” said Yehotal Shapira, an architect who led a group of Israelis on a recent tour of the site. “We have to stop being afraid, and talk about it. We shouldn’t respond with such panic, but with respect for the culture of another people. This place carries all kinds of memories. We have to learn to respect them. Israeli society is strong enough to deal with these questions.”

Ordinary Israelis who come Lifta to picnic and take a dip in the pool near the village spring seem oblivious to its past, enjoying the cool water and the shade of the trees as they would any park. A marked hiking trail leads visitors among the ruins, which have attracted walkers and squatters who have sheltered in some of the empty buildings over the years.

But for Yacoub Odeh, 71, who remembers being evacuated from Lifta under fire as a boy and now lives in East Jerusalem, visits to the ruined village bring back painful memories.

Marketing Lifta as a housing development would “destroy our memory and our history,” Odeh said. “My strategic goal is to return to my home. But if this is impossible now, leave Lifta for history, to be a testimony to what happened, and a lesson for all of us.”