Far-right Israeli groups plan to march in East Jerusalem on Tuesday in a flag-waving procession that risks reigniting tensions with Palestinians and poses an early test for Israel's new government.

The marchers hope to pass through Jerusalem's walled Old City, which is home to shrines sacred to Judaism, Islam and Christianity and is the most sensitive site in the Israeli-Palestinian conflict.

Assailing the march as a "provocation", Palestinians called for "Day of Rage" protests in Gaza and the Israeli-occupied West Bank, with memories still fresh of confrontations between Israeli police and Palestinians during the Muslim holy month of Ramadan.

"We warn of the dangerous repercussions that may result from the occupying power's intention to allow extremist Israeli settlers to carry out the Flag March in occupied Jerusalem," Palestinian Prime Minister Mohammad Shtayyeh said on Twitter.

The march was originally scheduled for May 10 as part of "Jerusalem Day" festivities that celebrate Israel's capture of East Jerusalem in the 1967 Middle East war.

At the last minute it was diverted away from the Old City's Damascus Gate and Muslim Quarter - potential flashpoint areas.

But even after the re-routing, it helped trigger the 11-day hostilities between Gaza's Islamist rulers Hamas and Israel, during which Hamas fired thousands of rockets into Israel and Israel carried out air strikes and artillery barrages on Gaza.

The march is being held by Israeli rightists who were angered that last month's event was diverted from its traditional route and accused former Prime Minister Benjamin Netanyahu's government of caving in to Hamas.

Israel's internal security minister approved it on Monday and the procession was scheduled for 6 p.m. (1500 GMT).

"We will march, thousands of us, with flags where we're told. Anywhere we're told not to march - we won't march," Matan Peleg, one of the march organisers told Israel's Army Radio.

Diplomats urged restraint by all sides.

"Tensions (are) rising again in Jerusalem at a very fragile & sensitive security & political time, when UN & Egypt are actively engaged in solidifying the ceasefire," U.N. Middle East envoy Tor Wennesland said on Twitter.

He urged all sides to "act responsibly & avoid any provocations that could lead to another round of confrontation."

TEST FOR BENNETT

The march poses a challenge for newly installed Prime Minister Naftali Bennett and his alliance of right-wing, centrist, left-wing and Arab parties, who took office on Sunday and brought Netanyahu's long rule to an end.

Bennett heads a far-right party and diverting the procession could anger members of his religious base and expose him to accusations that he was giving Hamas veto power over events in Jerusalem.

Israel, which occupied and later annexed East Jerusalem in a move that has not won international recognition, regards the entire city as its capital. Palestinians want East Jerusalem to be the capital of a future state, to include the West Bank and Gaza.

Palestinian protests were planned for 6 p.m. (1500 GMT) across Gaza, and Hamas and Palestinian President Mahmoud Abbas's Fatah faction have called on Palestinians to flock to the Old City to counter the march.

Although the final route remains unclear, police said on Tuesday they would close streets in areas mainly populated by Palestinians leading to the Old City's Damascus Gate and skirting the Old City's ramparts.

Israeli Defence Minister Benny Gantz met police, military and intelligence chiefs on Tuesday and "underscored the need to avoid friction and protect the personal safety of Israel's citizens, Jews and Arabs alike," his office said.