This was thus entirely foreseeable and preventable. Stopping it after the last approval (or even now) is still possible, but would require extraordinary measures.  Informally, this could have come in the form of the Prime Minister or Mayor engaging the settlers and their supporters directly (bearing in mind that Netanyahu has a long and close relationship with Irving Moskowitz, the American millionaire who is bankrolling the project).  Formally, the government of Israel could expropriate the site based on "raisons d'etat" (considerations of the state).  There is a decade old official legal opinion by Israel's Attorney General that recognizes and sanctions the government authority to expropriate it cases like this (just as since 1967 Israel has expropriated some 35 percent of East Jerusalem for settler use, it could expropriate this area for non-settler use).  

Instead, the government of Israel elected not to intervene and in doing so, either by negligence or by design left the veto-by-provocation in the hands of the settlers.

This also raises another important - with respect to Jerusalem settlements (if you listen to Israeli officials) there is no "window of opportunity" to act. With something like Ramat Shlomo, the argument is that the construction won't start for years, so there is no need to intervene to stop it.  With something like Shepherd's Hotel, the argument is that it is too late to stop it. And in the end the result is predictable in advance and devastating to the prospects for peace.

For excellent analysis of the story from Washington, see here.

Shimon Ha-Tzaddik:  As has been reported in the Israeli Hebrew-language press, on March 2, 2010, a three year-old, dormant plan -Plan 12705, which involves the demolition of all the existing (Palestinian) homes in the Shimon Ha- Tzaddik area of Skeihk Jarrah and the construction of 200 settler homes in their place - was reopened in the Municipality.  According to the Municipality's website the plan has fulfilled all the preliminary requirements of the District Planning Board.  Plan 12705 was opened by the settlers in June 2007 and was shelved (i.e. officially classified as "archived") in June 2009.  However, in an unusual twist, it appears that a number of actions have been taken to promote the plan since it was shelved.  It is these actions that enabled it to now be classified as fulfilling the basic requirements of the District Planning Board.

Lest their any doubt about the goal of Plan 12705, a verbatim translation of the "Essence of the Plan" page on the public Jerusalem Municipality website reads:  "Establishment of a residential project in the area surrounding the Tomb of Shimon ha-Tzaddik. Total: appx. 200 residential units, appx. 45,000 sq. meters. Demolition of existing buildings".
 
This is still the very early stages of the planning process.  That said, all of this is highly irregular - the sporadic opening and closing of the file, the rapidity of its preliminary approval by the technical staff of the Regional Planning Board (on the same day that the plan was reopened), and the timing are all highly suspicious.