Hundreds of Palestinian residents of the east Jerusalem neighbourhood of Sheikh Jarrah face eviction from their homes unless they agree to a compromise drawn up by Israel's supreme court under which they would stay put while recognising Jewish ownership of their property.
The dispute has raised tension in Jerusalem and earlier this year led to fierce clashes that were among the factors behind the 11-day Gaza conflict, with Hamas proclaiming it was defending Palestinian rights in the disputed neighbourhood.
The supreme court represents the last hope for the Palestinians threatened with eviction, and the three justices ruling on the high-profile case on Monday indicated they did not want to force the Palestinian families on to the street.
"What we are saying is, let's move from the level of principles to the levels of practicality," Justice Isaac Amit told the court. "People must continue to live there and that's the idea, to try to reach a practical arrangement."
Under the compromise proposed by the court the Palestinians would be able to remain in their homes with the status of protected tenants and their children and grandchildren would also be able to stay in the houses. In exchange, they would pay a symbolic annual rent to the Nahalat Shimon Jewish settler company, which has been seeking to evict them.
However, the two sides failed to commit to the deal. and the initial response from the Palestinian side suggested that the families would reject the proposal when the court reconvenes at a future date to hear the response of the parties.
Attorney Sami Ersheid, who represents four Sheikh Jarrah families, said his clients feared that by accepting the status of "protected tenants" they would have given up their ownership claims to the property.
Legal battle
The legal battle of the four families is considered a precedent for the additional 24 families in their neighbourhood who are facing eviction. According to rights groups more than 1,000 Palestinians are at risk of being evicted.
Lawyers for the Jewish residents who want to replace the Palestinians claim the issue is a property dispute, and Israeli law is on their side.
For the Palestinians the issue represents a wider effort by Israel to "Judaise" Palestinian neighbourhoods captured during the 1967 Six -Day War and they claim that Israeli law discriminates against Palestinian land claims.
The Jerusalem district court has already ruled that the houses in question had been owned by Jews prior to the establishment of Israel in 1948. After the Jewish owners fled during communal fighting Jordan, which controlled the West Bank and east Jerusalem until 1967, allowed Palestinian refugees to settle in the neighbourhood in the 1950s.