Israeli Defence Minister Shaul Mofaz has approved a revised draft of the route for the West Bank barrier.
A quarter of the barrier has already been built
The new path was ordered after the Israeli Supreme Court ruled that current plans must be amended to reduce disruption to Palestinian communities.
The changes still have to be approved by Prime Minister Ariel Sharon.
The UN World Court says the barrier is illegal and should be dismantled where it runs across Palestinian land, but Israel says it will ignore the ruling.
It has also refused to accept a non-binding resolution by the UN General Assembly.
The Jewish state says that the complex of walls and fences is vital to stop attacks by Palestinian militants.
The Israeli defence ministry said no map of the new route would be published until approval by Mr Sharon, expected in the next few days.
But the Associated Press news agency quoted security sources as saying the changes will mainly affect a 40km stretch of the barrier between Jerusalem and the Jewish settlement of Elkana, bringing it closer to the Green Line, the pre-1967 border between Israel and the West Bank.
While approving the route, Mr Mofaz expressed reservations about 10 specific points on the route and deferred a decision on them pending further talks and a personal visit to the region.
He also ordered construction of parts of the barrier south of Jerusalem to be speeded up.
Palestinian cabinet minister Saeb Erekat said the changes did not go far enough.
"In Jerusalem, Israel should put the wall on the Green Line," he said.
"As long as it's not on the Green Line, it's not acceptable."
The Palestinian Authority says the real goal of the barrier, a quarter of which has already been built, is to grab more Palestinian land, as extensive sections encroach on occupied territory.