Israel's cabinet has effectively killed legislation that would have barred Arabs from acquiring land in Jewish communities.
Israel's cabinet voted 22-2 to refer the controversial bill for review by a committee of inquiry into constitutional affairs, which observers say means it now has no chance of ever becoming law.
The turn-around follows international and local protests over the proposed legislation approved by the cabinet only one week earlier.
Prime Minister Ariel Sharon played a crucial role in reversing the decision. Mr. Sharon had initially backed the bill, but acknowledged that such legislation could harm relations between Jews and the more than one million Arab citizens of Israel.
He told the cabinet that it would be wrong to pass the bill into law "as long as we are not certain that it is completely necessary".
The bill was drawn up to nullify a landmark decision of Israel's Supreme Court two years ago that Arab Israelis have the right to live in communal settlements located on state land, regardless of whether the majority population is Jewish.
The court voted 4-1 in 2000 to grant a petition by an Arab couple asking for permission to buy land and build a home in the communal settlement of Katzir, established by the Jewish Agency in 1982.
Before the ruling, Israeli Arabs had been prevented from moving to the community, because the Jewish Agency deals only with Jewish settlers and the community leaders said they would therefore only accept Jews as residents.
Several government ministers publicly lobbied for the original cabinet decision to be overturned, saying such legislation threatened to harm Israel's image in the international community.