Israel's outgoing government has said a flag march by Israeli nationalists through Jerusalem's Old City can happen next week pending police approval.
The event had been due to take place on 10 June, but organisers cancelled it after Israeli police rejected the proposed route through the Muslim Quarter, citing security concerns.
Palestinians see it as a provocation.
The militant group Hamas has warned the march could trigger a new round of conflict in Gaza should it proceed.
At least 256 people were killed in Gaza and 13 people were killed in Israel during 11 days of fierce fighting between Israel and Palestinian militants last month.
The violence came after weeks of spiralling Israeli-Palestinian tension which culminated on 10 May in clashes at a holy site in the Old City that is revered by both Muslims and Jews. The march was originally due to take place that day but was rerouted by Israeli authorities at the last minute and then cancelled.
Hamas began firing rockets into Israel after warning it to withdraw from the holy site, triggering retaliatory air strikes from Israel on targets in Gaza.
After a meeting on Tuesday, the cabinet of Israeli Prime Minister Benjamin Netanyahu said the flag march could go ahead on 15 June "in a format to be agreed between the police and the parade's organisers".
The Israeli parliament, the Knesset, is due to vote on a new government on Sunday. Mr Netanyahu, Israel's longest-serving prime minister, will be replaced after 12 years in power if the new coalition is approved.
It would then fall to the incoming government, led by the right-wing nationalist Naftali Bennett and centrist Yair Lapid, to make the final decision on whether the flag march should take place two days later.
The annual Jerusalem Day flag march marks Israel's capture of East Jerusalem - home to the Old City and its holy sites - in the 1967 Middle East War.
Hundreds of flag-waving Israeli youths usually make their way through the Muslim Quarter via Damascus Gate, chanting and singing patriotic songs.
Clarification 9th June: This article was updated to make clear that the march had been approved pending police approval.