Israel says the UN mission is biased against it
It is the third time Israel has delayed accepting the team since the UN decided to send the mission on 19 April.
Israel continued its operation against militants in the West Bank on Tuesday, sending troops and tanks into two villages, while forces began withdrawing from Hebron.
After cabinet discussions on Tuesday morning, the government said concerns regarding the UN mission still needed to be addressed.
"Israel raised a number of issues with the United Nations that are vital for conducting a fair inquiry.
"As long as these conditions have not been met there is no possibility to start the inquiry," a statement said.
Prosecution fears
The BBC's Jennifer Glasse in Jerusalem says Israel is concerned the fact-finding team will issue opinions that could be the basis for future legal action.
It wants the right to decide which soldiers testify to the mission and is seeking assurances they will be immune from prosecution.
Palestinian officials denounced Israel's decision, saying the UN should impose sanctions on the Jewish state.
"The decision, in itself, is a war crime against the Palestinian people and confirms that massacres have been perpetrated at Jenin camp," said Palestinian Information Minister Yasser Abed Rabbo.
Palestinians claim hundreds of civilians were killed in the camp; Israel denies the charge, insisting about 50 Palestinians - mainly militants - died in nine days of fighting.
West Bank raid
In continuing violence, Israeli forces moved into the villages of Shawarwa, near Bethlehem, and Silat al-Harthiyeh, near Jenin, on Tuesday morning.
The Israeli army said it had arrested six Palestinians in Shawarwa before pulling out.
Palestinian sources said nine Palestinians were detained in Shawarwa and four in Silat al-Harthiyeh.
In Hebron, Israeli tanks and troops began withdrawing from the Palestinian section of the divided city, a day after moving in.
Earlier, tanks surrounded al-Ahli Hospital in Hebron while soldiers searched for wanted Palestinians believed to be hiding inside, the army said.
The army said it went into Hebron on Monday to crush the "terror infrastructure" in the city after Palestinian militants killed four Israelis in a nearby Jewish settlement.
Siege progress
There were signs of progress towards ending Palestinian leader Yasser Arafat's isolation on Tuesday as UK, US and Palestinian officials were to hold talks on the fate of six Palestinians wanted by Israel.
Israel has said it will lift its month-long blockade of Mr Arafat's headquarters in Ramallah if the men are guarded by foreign wardens in a Palestinian prison.
Four of the six men have been convicted by a Palestinian court of the killing of Israeli Tourism Minister Rehavam Zeevi and sentenced to long jail terms.
Transfer deal
Discussions are focusing on transferring the men - who are inside the compound with Mr Arafat - to a prison near the Palestinian city of Jericho.
Israeli Government officials have suggested that an understanding was reached that if Israel agreed to a deal to free Mr Arafat, the US would support Israel in its stand-off with the UN over Jenin.
In Bethlehem, a fresh round of talks between Israeli and Palestinian officials was taking place to try to end the month-long siege of the Church of the Nativity.
Click here for Nativity siege timeline
The Vatican said on Tuesday it was sending a high-ranking envoy to Jerusalem to try to resolve the dispute over the fate of about 200 Palestinians, including 30 armed militants, sheltering inside the church.