The synagogue, along with every other synagogue in the Old City, was destroyed by the Jordanians in 1948. Only one wall remained.
While its rebuilding was approved years ago, apparently construction has started.
The Mufti of Jerusalem issued a condemnation, claiming that the synagogue was being built on what used to be a Muslim chapel (in other reports, a school).
QPress has a video report about it, in context of the "Judaization" of Jerusalem, which features a Muslim man openly discussing the building plans near the site as Jewish students walk by and don't bother him.
Al Jazeera reports that Israsel only claims that there was a synagogue there beforehand, but it was really a Muslim site.
What really bothers them is that the dome on the top will dominate the Jerusalem skyline, higher than the Dome of the Rock or the Al Aqsa Mosque dome.
This was the major objection to the rebuilding of the beautiful Hurva synagogue a few years ago.
Here is a photo of the Jewish Quarter before 1948. Tiferet Yisrael is the domed building on the left, in this photo taken looking up from the Temple Mount.
Here's a video I made from high resolution aerial photos of Jerusalem in 1936 showing the Hurva and Tiferet Yisrael: