Israel on Thursday announced a month-long trial during which Palestinian Americans who live in the occupied West Bank will be given unrestricted access to Israel, National Security Adviser Tzachi Hanegbi said.
It marks a significant moment in the country's decades-long push to join the coveted US visa-waiving programme.
"Today, the State of Israel took another important step towards its participation in the US Visa Waiver Programme," Mr Hanegbi said in a statement.
"The reciprocity outline will allow any American citizen to enter Israel, and subsequently when Israel is accepted into the programme, will allow Israeli citizens to enter the US without a visa.
"This reciprocity outline will apply to all American citizens, including those with dual citizenship and those who are residents of Judea and Samaria and the Gaza Strip," he said, using the biblical name for the occupied West Bank.
Earlier on Wednesday, State Department spokesman Matthew Miller said the new policies would "ensure equal treatment for all US citizen travellers, without regard to national origin, religion or ethnicity".
"Our understanding is that this policy will apply to all US citizens, including Palestinian Americans on the Palestinian population registry,” Mr Miller said.
Israeli authorities currently prevent American citizens of Palestinian origin who live in the West Bank or are going to visit relatives there from access to Israel, citing security concerns.
It also prevents them from travelling in and out of Ben Gurion International Airport.
Travellers must fly to neighbouring Jordan and then cross into the West Bank by land, a cumbersome and costly detour.
Exact numbers are hard to come by, but the Arab American Institute estimates between 122,500 and 220,000 Americans are of Palestinian descent. It is unclear how many of them live in the West Bank.
Arab and Muslim Americans travelling to Israel are also often subjected to lengthy questioning at Israeli ports of entry.
The development comes after years of Israeli efforts to join the US Visa Waiver Programme, a sought-after scheme that allows citizens of certain countries to travel to the America for tourism, business or transit, without needing to apply for a visa.
But to be eligible for the VWP, a country must meet specific criteria, including reciprocal visa-free travel for US citizens. Currently, 39 countries participate.
Israel's treatment of Palestinian Americans has so far made it ineligible for the programme.
On Wednesday, Mr Miller said the US government would make a decision on whether Israel should be admitted to the VWP by September 30.
"We will be monitoring their compliance with the policies they are announcing and their compliance with the visa waiver requirements, and we will see at the end of it whether they've met the full requirements for entry into the programme," he said.
Mr Hanegbi said Israel's ambassador to Washington, Michael Herzog signed a preliminary agreement setting the terms for Israel's possible entry into the programme.
A Reuters report on Wednesday said a delegation from the State and Homeland Security departments would visit Ben Gurion Airport and monitor the situation during the trial period.
Ties between the two allies have been strained over Prime Minister Benjamin Netanyahu's extreme right-wing government's controversial plan to overhaul Israel's court system and over its hardline policies towards the Palestinians.
On Wednesday, Israel's President Isaac Herzog gave a speech to the US Congress, stressing “the sacred bond” between the two nations.