Sunday's suspension order, which will remain in force until next week, allows the court to examine appeals presented by residents of eight Palestinian villages in the West Bank against construction of the barrier on their land.
Around 30 Israeli residents of the neighbouring town of Mevasseret Tzion have also presented an appeal against construction in the area.
According to a petition presented at court, "this barrier being erected on Palestinian territory will provoke tensions which will endanger the security of Israelis living in the area", the sources added.
Muhammad Rayan, 25, and Zakaria Eid, 28, were killed by Israeli fire last Thursday during a demonstration against a section of the barrier that sparked clashes with Israeli soldiers in the village of Biddo.
Israel began work on a 42km section of its barrier last Tuesday which goes through Biddo and the neighbouring village of Beir Surik, leading to daily protests and clashes with soldiers and border police.
The Israeli government insists the barrier is necessary to prevent "suicide attacks" on its soil, but the Palestinians say its route, which often juts deep into their territory, shows that it is little more than a land grab.
"Any judicial delay will give a suicide bomber the chance to enter Israeli territory."
Israeli Defense Minister
Israeli Defense Minister Shaul Mofaz, who paid a visit to the site on Sunday, denounced the court's decision.
"Any judicial delay will give a suicide bomber the chance to enter Israeli territory," the minister was quoted as saying by public radio.
The barrier's legality was the subject of hearings last week at
the International Court of Justice in The Hague. No date has been set for the court to deliver its non-binding verdict.