The court upheld an appeal against Netanyahu's refusal, as Israel's defense minister, to grant entry to 176 Palestinians for Tuesday's event. The court ordered Netanyahu to grant entry permits for 100 Palestinians to enter Israel for the ceremony.
Israeli authorities had cited the precarious security situation amid rocket fire by Palestinian militants from the Gaza Strip and Israeli retaliatory air strikes over the weekend, but the judges pointed out that Netanyahu's decision had been made before this weekend's escalation of hostilities along the Gaza border.
Israel's annual Memorial Day for fallen soldiers and victims of terrorism begins Tuesday evening and is marked with mournful ceremonies and visits to cemeteries by bereaved. For the past 14 years an Israeli group, Combatants for Peace, have organized an alternative Israeli-Palestinian Memorial Ceremony that aims to "acknowledge the pain of those living on the 'other side,'" and brings together Israeli and Palestinian families bereaved by the conflict.
The judges noted that they had rejected a similar move last year to bar Palestinians from attending the ceremony.
Last year's commemorations were marred by then-defense minister Avigdor Lieberman's dispute with the event's organizers after he had barred bereaved Palestinian families from taking part in the ceremony.
Netanyahu said in a statement that the Supreme Court's decision was "wrong and disappointing."
"There is no place for a memorial ceremony comparing the blood of our people and that of terrorists," the prime minister said.
Supreme Court Justice Anat Baron, one of the judges on the High Court of Justice panel that heard the petition, wrote in her arguments that the joint memorial ceremony "brings together those who actively seek to change the reality of hatred and instill hope."
"The strength of Israeli society, particularly on this day, is in its ability to include the different voices within it," she said.