The country’s top court judges proposed the so-called settlement, which might prevent evictions at the hearing of four Palestinian families facing expulsion by Israeli settlers in the flashpoint neighbourhood of occupied East Jerusalem.
Israel's Supreme Court has offered Palestinian families in the Sheikh Jarrah neighbourhood of occupied East Jerusalem a so-called “protected status” which prevents forced expulsion in coming years but does not confer them ownership of their homes, according to local media.
The Supreme Court held a hearing on Monday on the case of four Palestinian families facing expulsion by Israeli settlers in occupied East Jerusalem, an issue that sparked conflict in May.
Palestinians said they were offered the chance to remain in their properties in the Sheikh Jarrah neighbourhood as "protected tenants" who would recognise Israeli ownership of the homes and pay a symbolic annual rent, but they refused.
"They placed a lot of pressure on us to reach an agreement with the Israeli settlers in which we would be renting from the settler organisations," said activist Muhammad el Kurd, from one of four Palestinian families at the heart of the case.
The hearing ended inconclusively with the protected status without any verdict delivered.
The families' lawyer, Sami Irshaid, said that proposal was unacceptable and that they were waiting for the Supreme Court to set a date to continue the hearings in the hope it leads to the reversal of a lower court ruling to evict.
Dozens of people protested outside the court in Jerusalem in support of the Palestinians from the city's Sheikh Jarrah neighbourhood and against "Israeli settlement," an AFP reporter said.
Tel Aviv launched a crackdown in May after weeks of violence by Israeli police against Palestinian demonstrators in the Old City and in the nearby neighbourhood of Sheikh Jarrah, where Jewish settlers have waged a decades-long campaign to evict Palestinian families from their homes.
Four Palestinian families in Sheikh Jarrah had requested that the Supreme Court hear an appeal on their case, after the magistrate and district courts both ruled their homes belong to Jewish settlers.
The four families had initially been ordered evicted, but the order was suspended as they pursued an appeal in the legal system.
The Israeli court system normally allows only one appeal after a ruling.
Since the Palestinians had already appealed the magistrate court ruling, the Supreme Court must decide whether to make an exception in this case.
Adel Budeiri, a lawyer for one of the affected families, said "all the families, without any exceptions, are refugees from historical Palestine ... and because of the unjust absentee law, they can't claim these houses back."
His clients, the Dajani family, are one of several Palestinian families facing imminent eviction in the Sheikh Jarrah neighbourhood of occupied East Jerusalem.
Two lower courts had ruled that, under Israeli property law, the homes in question belonged to Jewish owners, who purchased the plots prior to the 1948 war that led to the creation of Israel.
In 1956, when occupied East Jerusalem was under Jordanian control, Amman leased plots of land to families in Sheikh Jarrah, and the UN agency for Palestinian refugees built homes for them.
Amman promised to register them in their name but never gave them full property rights.
Palestinian residents say Jordan granted them homes on the property after they were expelled from towns in what became Israel. On Monday they argued newly obtained Jordanian documents proved their case.
In 1967, Israel occupied East Jerusalem, then annexed it in a move never recognised by the international community.
In 1970, Israel enacted a law under which Jews could reclaim land in occupied East Jerusalem they lost in 1948, even if Palestinians by then already lived on it.
No such option exists for Palestinians who lost homes or land.
Israeli anti-settlement group Ir Amim says that over 1,000 Palestinians are at risk of losing their homes to Jewish settler groups and individuals in Sheikh Jarrah and the neighbouring Silwan neighbourhood.