Palestinians said they were offered the chance to remain in their properties in the Sheikh Jarrah neighborhood as "protected tenants" who would recognize 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 organizations," said Muhammad el-Kurd, from one of four Palestinian families at the heart of the case.

"Of course, this is rejected," he said.

Monday's hearing was part of a years-long legal battle waged by Jewish Israeli organizations trying to reclaim property owned by Jews in east Jerusalem prior to Israel's founding in 1948.

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.

The four families had initially been ordered evicted, but the order was suspended as they pursued an appeal in the legal system.

The agreement proposed Monday would have Palestinian families pay 1,500 shekels ($465) a year to the settler organization Nahalat Shimon. Lawyer Sami Irshid, representing the Palestinians, rejected the Israeli claims to the property.

"We are willing to be listed as protected tenants while retaining our rights," he said in court. "We will request recognition of the property rights the government of Jordan gave us."

Ilan Shemer, representing the Jewish Israelis, said that "this arrangement will be an empty arrangement".

Danny Seidemann, an attorney specializing in Jerusalem, told AFP the court delayed a decision in an effort to bridge those positions, with judges asking the Palestinians to present a list of potential protected tenants.

Seidemann said an agreement could defer evictions for decades.

"It also means evictions at some point would be inevitable," he said.

The case has become an international cause, with dozens of people demonstrating outside the court on Monday.

Clashes in May over possible Sheikh Jarrah evictions spread to Jerusalem's Al-Aqsa mosque compound, sparking an Israeli crackdown that escalated into an 11-day war between Israel and Palestinian militants in the Gaza Strip.

The families in Monday's case appealed to the supreme court after two lower courts ruled that under Israeli property law, the homes in question belonged to the Jewish owners who purchased the plots before 1948.

In 1956, when 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.

Jordan promised to register the properties in their names, but did not complete the process before Israel captured east Jerusalem in 1967 and annexed it in a move never recognized by the international community.

A 1970 Israeli law allows Jews to reclaim land in east Jerusalem that they lost in 1948, although no such option exists for Palestinians who lost property.

Jerusalem deputy mayor Arieh King, who supports the Jewish Israeli claims in the neighborhood, decried the court's delay.

"As long as the court drags this on, there is more room for Arabs to make riots," King told AFP.

The Palestinian families said in a statement that they affirmed their rights to their homes "until the last breath".

Israeli anti-settlement group Ir Amim says that more than 1,000 Palestinians are at risk of losing their homes to Jewish settler groups in Sheikh Jarrah and the Silwan neighborhood of east Jerusalem.

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