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If you create a dynamic web project and a utility project, then add an external jar to the Java build path of the utility project, you can use the Deployment Assembly page to mark the external jar for "publish/export" by clicking Add and using the "Referenced Projects Classpath Entries" in the New Reference Wizard. After marking the external jar with a check and clicking Finish, the "Pull in classpath elements from referenced projects" reference gets added to the dynamic web project. This reference causes a build path cycle which prevents the project from building. The problem is that J2EEComponentClasspathContainer.update() is adding the referenced component from the "Pull in classpath elements..." reference to the web project's classpath, which is the web project itself, creating the cycle. I'm not sure what mechanism is appropriate so J2EEComponentClasspathContainer will ignore this "special" reference.
It appears this bug may be a duplicate of Bug 311981. The "Pull in classpath elements..." reference has a dependency type of "consumes" so the changes to J2EEComponentClasspathContainer found in the patch for Bug 311981 fixes this bug as well. Since this use case might have additional issues to consider, I'll leave it to others to officially declare it to be a duplicate.
Assigning to Jason Sholl for initial investigation (and duplication, if appropriate.)
Yes, this is a duplicate of bug 311981. *** This bug has been marked as a duplicate of bug 311981 ***