Israel's top court has proposed a plan to enable Palestinians threatened with eviction in East Jerusalem to stay, in a closely-watched and divisive case.

The Supreme Court was expected to issue a ruling to end a long legal battle but urged the sides to compromise instead.

It proposed the four families could stay in their homes in Sheikh Jarrah if they recognised the land was owned by a Jewish settlement company.

The issue has fuelled Israel-Palestinian tensions in recent months.

The threat of evictions stoked some of the worst violence between Israeli police and Palestinians in Jerusalem in years, culminating in an 11-day conflict with Gaza after its militant Hamas rulers fired rockets at the city in what it said was partly a response to Israeli "harassment" in Sheikh Jarrah.