Israel is rethinking the application of a property law under which thousands of hectares of Palestinian-owned land could be seized, media reports say.
Land on the Jerusalem side has already been expropriated
Haaretz says the US is concerned a 1950 absentee owners law could be used to take land from Palestinians cut off by Israel's separation barrier.
The review is expected to be announced at a meeting of Israeli envoys and the US secretary of state later today.
Senior Israeli officials confirmed the newspaper report to the BBC.
The main purpose of the meeting between Secretary of State Condoleezza Rice and Israeli envoys Dov Weisglass and Shalom Turgeman is to prepare for her trip to the region in the coming week.
Prime Minister Ariel Sharon's government decided to implement the controversial Absentee Property Law in east Jerusalem last July.
It was originally enacted to allow the seizure of property of Palestinians who fled to neighbouring Arab countries during Israel's creation in 1948.
Hundreds of Palestinian families risk being considered absentee owners as the barrier Israel is building between the West Bank and the Jerusalem municipality currently cuts them off from their land.
Palestinians say it is an attempt by Israeli to justify illegal acquisition of territory in Jerusalem with a view to excluding it from future peace talks.
Israel captured the eastern half of Jerusalem in 1967. Palestinians want it for the capital of their future state.