The new orders will come into effect in five months.
The petition was filed by the council of Beit Sira village in 2007, and was backed by 24 other petitioners.
Supreme Court President Dorit Beinish and Justice Uzi Fogelman determined that the army must find an alternative solution to security issues arising from joint use of the road by Palestinians and Israelis.
However Justice Edmond Levy opposed the petition, opining that the army and Defense Ministry should be given jurisdiction over the issue, and should find a solution without the intervention of the court. He added that five months would not be sufficient for the implementation of the court's orders.
Attorney Limor Yehuda of the Association for Civil Rights in Israel said in response that the ruling had stated that the army exceeded its authority by closing the road to Palestinians.
"The High Court recognizes the illegality of the regular separation regime on Route 443. We hope that the IDF will implement the ruling and allow the area's residents to realize their right to travel on the road," she said.
Attorney Yehuda expressed her hope that the ruling would bring an end to the "separation disgrace" and eviction of Palestinians from the road paved for them on their lands.
Just one week ago security forces prevented a terror attack on the route between Jerusalem and Modi'in, when a routine IDF patrol discovered an explosive device made of a gas container and flares.
The device, which had been intended for passing vehicles, was dismantled without injury.