The Supreme Court ruled on Tuesday that Arab families in the eastern Jerusalem Sheikh Jarrah neighborhood would not be evicted at the moment.
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Israeli courts had ruled that Jews owned the land before 1948 and were subsequently occupied by Palestinians when Jordan controlled Jerusalem.
However, the Supreme Court ruled that the families could stay in their homes for now and be accorded protected tenant status until the Justice Ministry decides who has rights to the homes. No timeline was given for that, but the ruling suggested it could take years.
The court also ordered each family to pay an annual symbolic sum in rent into an escrow account.
Sheikh Jarrah has been a focal point of tension, and Hamas used the issue as a pretext for violence against Israel, which eventually led to the 11-day war with Israel last year.
In February, a senior member of the Palestinian Islamic Jihad terrorist organization warned that it was prepared for a fresh round of fighting with Israel.
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Khaled al-Batsh, a PIJ official in the Gaza Strip, told Palestinian radio: "What happened in the past was the starting point for 'The Sword of Jerusalem,' and we are ready to fight round two."
Batsh referred to the name PIJ and Hamas gave their military campaign during the war last year, which Israel called "Operation Guardian of the Walls."
JNS.org contributed to this report.
