The new neighborhood will house the 300 Jews of the Umran province where the murder took place.
Yemen's president has informed human rights organizations and the heads of the Jewish community in the country of his decision to allocate an area in Sana's northern suburb for the construction of a residential neighborhood for Jews on the state's expense.
Any family who decides to move there from Umran will receive $10,000 in compensation.
According to President Saleh, the Jewish neighborhood will be guarded by security forces at all hours.
Since Nahari's murder dozens of Jews in Umran have reported receiving death threats and falling victim to violent harassment in the streets of the Umran province.
A Yemeni judge on Monday ordered the man accused of murdering Nahari to go for a medical checkup to determine if he was competent to stand trial.
At the opening of the trial, lawyers for defendant Abdel Aziz Yehia Hamoud al-Abdi appealed to the judge that he was mentally unfit to stand trial and asked for a medical examination.
"Every one who knows him, knows he is insane," lawyer Khaled al-Shalali told the court, describing the defendant as a retired pilot in the Yemeni army.
AP contributed to the report