This year's march came as Muslims prepare to begin observing the fasting month of Ramadan, when many Palestinians visit the flashpoint Al-Aqsa mosque in Jerusalem's Old City.
The Israeli march for "Jerusalem Day" was also passing through the Muslim quarter of the Old City before arriving at the Western Wall, which is directly below the Al-Aqsa compound, leading to fears of tensions.
Some 30,000 demonstrators were expected at the march which began at around 5:15 pm .
"We have more than 2,000 police just for the Jerusalem Day events."
Israeli rights group Ir Amim had asked the supreme court to bar the march from entering the Old City through the Damascus Gate, the main entry used by Palestinians.
The court rejected the appeal, but required the marchers to complete their passage through the Damascus Gate by 6:15 pm and through the Muslim quarter by 7:00 pm.
The time restrictions were in place in case Ramadan began on Sunday night. The start of Ramadan coincides with the new moon.
At Damascus Gate, heavy security included barricades and nearby cafes that cater to tourists had closed.
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