More than a thousand marchers bearing Israeli flags gathered outside Jerusalem's Old City on Tuesday at the start of a controversial Jewish ultranationalist march that poses a key test to Israel's new government during its second full day in office.

With tensions high amid a fragile ceasefire after 11 days of deadly fighting between Israel and Gaza militants less than four weeks ago, medics said 17 Palestinians were injured as thousands of Israeli police cleared streets ahead of the march in annexed east Jerusalem.

The so-called March of the Flags celebrates the anniversary of the city's "re-unification" after Israel captured its east, including the Old City which houses sites holy to all three Abrahamic faiths, in 1967.

In the basin of steps outside the Damascus Gate, AFP reporters saw over 1,000 demonstrators waving a sea of blue and white flags and singing anthems of the Jewish state's settler movement. 

Some hoisted firebrand far-right lawmaker and Netanyahu ally Itamar Ben-Gvir on their shoulders.

Rallies by far-right Jewish groups in Jerusalem helped spark a police raid into the Al-Aqsa mosque compound last month that triggered the deadliest flare-up of Israeli-Palestinian violence since 2014.

Tuesday's demonstration was originally scheduled for early May, but organisers cancelled it in protest after police redirected the route to avoid Damascus Gate, a key entrance for Palestinian residents of east Jerusalem.

A new march was set for last Thursday but was delayed due to Israeli police opposition to the route and warnings from Hamas, the  Islamist group that controls the Palestinian enclave of Gaza.

The government of outgoing premier Benjamin Netanyahu delayed the march until Tuesday -- a date confirmed late Monday by the incoming government of Prime Minister Naftali Bennett.

It said organisers had consulted police on the best route for the march, which will not enter the Old City at the Damascus Gate, instead taking a route avoiding the Muslim Quarter before reaching the Western Wall, a holy site for Jews.

Police said more than 2,000 reinforcements had arrived in the city. 

Officers blocked streets around the Old City and used foam-tipped bullets and stun grenades to disperse Palestinians in clashes the Palestinian Red Crescent said wounded 17, including three hospitalised.

The march comes just two days after Netanyahu was ousted from 12 straight years in power, toppled by an ideologically divided coalition including left-wingers and for the first time in Israel's history, an Arab party.

New premier Bennett is himself a Jewish nationalist but his reliance on ideological rivals has sparked anger from Netanyahu's allies who accuse Bennett of treachery.

Mansour Abbas, whose four-seat Raam Islamic party was vital to the coalition, called Tuesday's march a "provocation" that should have been cancelled.

Ahmed Tibi from the Joint List bloc of Arab opposition parties said his faction had twice asked the government to cancel the flag march because "the only flag legitimate here in [Damascus Gate] and in east jerusalem is the Palestinian flag. The Israeli flag here is a symbol of occupation." 

- 'Very fragile' -

UN Middle East peace envoy Tor Wennesland warned all sides to behave responsibly at a "very fragile & sensitive" time and to protect a hard-won May 21 ceasefire that ended 11 days of heavy fighting in and around Gaza.

Israel's annexation of east Jerusalem since the Six-Day War of 1967 is not recognised by most of the international community which says the city's final status should negotiated between the two sides.

The Palestinians claim the city's east as the capital of their future state.

The iconic Al-Aqsa Mosque compound at the heart of the Old City is Islam's third holiest site and a national symbol for all Palestinians regardless of religion.

It is also Judaism's most holy site, where two Jewish temples stood in antiquity. By longstanding convention Jews are not allowed to pray inside the compound. Visits by Israeli Jewish politicians often trigger violence.

- Hamas warning -

Ahead of the march Tuesday, militants in Gaza sent incendiary balloons over the border, with Israeli fire authorities reporting 20 fires as a result in areas near the blockaded enclave.

The balloons came after Hamas spokesman Mohammed Hamadeh said mediators had been in contact with Palestinian armed groups in recent days to appeal to them "not to engage in a military escalation on the basis of the march."

"All options remain on the table, however," Hamadeh added.

When the march was originally announced last week, senior Hamas official Khalil Hayya warned it could spark a return to violence like that of May 10-21.

Last month's conflict started after Hamas issued a deadline for Israel to remove its security forces from flashpoint areas of east Jerusalem, and then fired a salvo of rockets at Israel when the ultimatum went unheeded.

Israeli strikes on the Gaza Strip between May 10 and 21 killed 260 Palestinians including some fighters, the Gaza authorities said.

In Israel, 13 people were killed, including a soldier, by rockets and missiles fired from Gaza, the police and army said. 

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