After months of stonewalling, the Israeli army in a statement on Tuesday said the military police would probe the circumstances in which Tom Hurndall, 21, was shot in Rafah.
"Once the investigation is concluded, the findings will be presented to the military advocate general and then a decision regarding the matter will be taken," the statement added.
Hurndall was hit in the head and critically wounded in the Rafah refugee camp and was subsequently pronounced clinically dead. He is currently in a vegetative state at a London hospital.
Palestinian medics and witnesses said Hurndall was trying to pull two Palestinian children out of danger when Israeli soldiers deliberately fired at him.
Hurndall was a volunteer with the International Solidarity Movement (ISM), a group of pro-Palestinian activists who engage in non-violent action to protect civilians in the West Bank and Gaza.
But the Israeli announcement for a probe had evoked a lukewarm response from the ISM. An ISM spokeswoman said that a investigation by the army "will not be independent".
"Such army investigations ended up putting the blame on the victims," she said.
Several ISM activists were wounded by the Israeli occupation army in the past.
An army investigation into the death of a 23-year-old US national and ISM activist Rachel Corrie concluded that her being crushed to death by an Israeli bulldozer in Rafah last March was an accident.
The Israelis said they would not take any disciplinary action against the soldiers involved.
Corrie had been trying to prevent the demolition of a Palestinian home.