Israel's defence ministry has ordered an end to the policy of demolishing the houses of Palestinian suicide bombers and their families.
Rights groups say many homes are demolished for "military reasons"
An army committee earlier reported that the policy had little deterrent effect and inflamed Palestinian hatred.
The policy would be reintroduced if there was "an extreme change in circumstances", a statement said.
In the past four years of the Palestinian uprising, Israeli soldiers have destroyed hundreds of homes.
Until now, the Israeli government had argues that demolitions deter attacks as bombers do not want to leave their families homeless.
According to the Israeli human rights group Btselem, Israeli soldiers using bulldozers or explosives have demolished 666 houses as punishment for attacks on Israelis since 2001.
The army committee did not look into the strategic demolition of Palestinian homes, mostly in Gaza, to secure army posts, settlements and roads used by settlers.
Over the last four years, Btselem says, 1,356 houses in the occupied territories were demolished by the Israeli army for what the group calls "alleged military purposes", making more than 10,000 Palestinians homeless.
According to Btselem, 253 Palestinian homes were demolished in 2004 because they did not have the correct licences.
Palestinians in the occupied territories, including East Jerusalem, complain that the Israeli authorities make it very difficult for them to gain licences for new buildings or extensions on existing properties.