The ruling could work to ease tensions in the neighborhood, which helped ignite the 11-day war between Israel and Hamas in Gaza last year.
The court ruled that the families could stay in their homes for now until Israel carried out a land arrangement, a process that could take years or may not be carried out at all, according to Ir Amim, an advocacy group that was not involved in the court case.
Dozens of Palestinian families in east Jerusalem are at risk of eviction by Jewish settler organizations, and thousands face the threat of demolition because of discriminatory policies that make it extremely difficult for Palestinians to build new homes or expand existing ones.
Other threatened evictions in Sheikh Jarrah and other neighborhoods, which are tied up in decades-old legal battles between Palestinian residents and Jewish settlers, set off protests and clashes last year that eventually helped ignite the Gaza war.
Israel captured east Jerusalem, along with the West Bank, in the 1967 Mideast war and annexed it in a move not recognized by most of the international community. Israel considers the entire city to be its capital, and the municipality says it is working to improve services for all residents.
The Palestinians want east Jerusalem to be the capital of their future state, and the city’s fate is one of the most divisive issues in the century-old Israeli-Palestinian conflict.