Acting Prime Minister Ehud Olmert said the decision to allow the vote was wholly Israeli, but added "there will be no Hamas propaganda and activists who enter east Jerusalem will be detained."
The decision was slammed by outgoing Foreign Minister SIlvan Shalom (Likud,) who told reporters "we're talking about a dangerous decision and the crossing of a red line.
Shalom added he does not believe PA leader Mahmoud Abbas' pledge to dismantle Hamas within 60 days of the elections.
"I heard from Abu Mazen (Abbas) himself in Tunisia that he doesn't have the ability to do it, and if he can do it two months from now, why doesn't he do it today?" Shalom said.
Earlier, a senior diplomatic source said a mere 1,000 of some 5,000 registered voters will cast a vote at east Jerusalem’s post office.
The official added the Internal Security Ministry will monitor the elections with the Shin Bet’s assistance to censor Hamas activities in the capital.
“Hamas activists who enter Jerusalem or demand to set up election
Earlier, police arrested three Arab youths who were hanging Hamas election posters on walls on east Jerusalem's Salah al-Din Street.
Meanwhile, opinion polls are predicting unprecedented support for Hamas in the parliamentary elections, with Israel bracing for a Palestinian parliament dominated by Hamas.
About 110,000 eligible Arab voters live in east Jerusalem, yet only 5,000 are registered to vote in the city.
The Palestinian Authority had threatened to call off elections should Israel ban voting in east Jerusalem.
Under pressure from Washington, the European Union, the United Nations and Russia, Israel agreed to allow voting in east Jerusalem but retained the right to ban the participation of terror organizations, a stance backed by U.S. Secretary of State Condoleezza Rice.
Poll: Hamas narrows gap
An opinion poll published in the territories Saturday, shows Palestinian Authority Chairman Mahmoud Abbas’ ruling Fatah winning the vote by a five percent margin against rival Hamas.
The poll showed 35 percent of Palestinian voters back Fatah as opposed to 30 percent of respondents who supported Hamas.
Nablus University pollsters say the margin is the narrowest between the two rivals since the first elections of 1993.
But experts warn that Hamas’ election ticket of fighting corruption and mismanagement could tip the balance in its favor, especially as its activists prepare to intensify campaigning over the last 10 days.
Hamas leader Gaza Ismail Haniya said his party will be an active player in the Palestinian political life, adding that a major European country has already pledged to hold talks with his group should it win the elections.
Haniya said the anonymous country’s Consul-General called Hamas officials in Gaza to say threats by the European Union to cut offfunding to the Palestinian Authority if Hamas wins the elections do not represent his government’s position.
Haniya added that European and American officials have contacted Hamas in the past.
‘Hamas will get stronger’
Meanwhile, Hamas leader Mahmoud Zahar said his group will not give up its arms even if it enters political life.
“We will do everything to strengthen the organization and lure PA security officers to join our ranks. Our brigades have been strengthened in numbers and in arms. We will not negotiate with Israel because talks over the last 10 years brought nothing but destruction to the Palestinian people,” he said.
Elsewhere, Palestinian Authority Chairman Mahmoud Abbas called on Hamas and Islamic Jihad to observe a cease-fire with Israel, saying “the lull in the territories has to continue.”
Speaking to the Qatar-based television station al-Jazeera, Abbas said the cease-fire in not “a present to Israel,” but rather, a Palestinian interest. He said the Palestinian Authority implemented a series of reforms under his leadership, yet did not receive media coverage.
Abbas acknowledged that the latest row within Fatah between the old leaders and a young guard vying for power has been distressful. He also said the PA will invest millions of dollars in the Gaza Strip after the elections.
Ali Waked contributed to the report