The disputed site is holy to Jews and Muslims
Acting Israeli public security minister Reuven Rivlin said tiny extremist Temple Mount and Land of Israel Faithful would not be allowed to place a huge cornerstone on the site of the Biblical Jewish Temple.
Arab leaders have warned that such a move would be an "unjustified provocation" that could "lead to a dangerous escalation".
Earlier this week, the Temple Mount Faithful petitioned the Israeli Supreme Court for permission to place a cornerstone in the Old City of Jerusalem as a symbolic first step towards building a Third Temple.
The Supreme Court blocked their request to place it on the actual site where Jews believe the Biblical Temple stood, but is allowing them to put it in a parking lot near an entrance to the Old City.
Rights violation
On Saturday, Arab leaders said that placing the stone at the Dung Gate to the Old City would be a "violation of Palestinian, Arab and Muslim rights".
Yasser Arafat's Fatah faction has urged Palestinians to mass at the site to thwart any attempt to carry the 4.5-tonne stone into the compound.
Israeli security forces have been instructed to keep order.
On Saturday evening, about 4,000 right-wing Jews marched around the walls of the Old City to begin commemorations of the destruction of the First and Second Temples.
The dispute centres on the Jerusalem site which Jews call the Temple Mount and Muslims call the Haram al-Sharif, where al-Aqsa mosque now stands.
It is the holiest location in Judaism and the third most sacred in Islam.
Commemoration date
Sunday is the ninth day of the month of Av in the Hebrew calendar, when religious Jews commemorate the destruction of the First Temple in 586 BC and the Second Temple in 70 AD.
The Temple Mount Faithful say that "not immediately rebuilding the Temple" is "the biggest failure and sin of our time".
Arab leaders responded angrily.
"By allowing extremist, fanatic elements into al-Aqsa tomorrow, Israel is clearly committing an act of tremendous provocation," Arab League spokeswoman Hanan Ashrawi said.
Jordanian Foreign Minister Abdel Ilah Khatib called it a "dangerous escalation".
Palestinian official Nabil Sha'ath described it as an extremely serious issue that had been discussed with Arab leaders.
On Wednesday, the Israeli Supreme Court refused to allow the Temple Mount Faithful onto the site itself, citing security concerns.
The Islamic authority that administers the site has not allowed non-Muslims to go there since the beginning of the Palestinian uprising in September, which was itself triggered partly by Ariel Sharon's visit to the site.