Jerusalem, with its key holy sites, is one of the most contentious issues in the Israeli-Palestinian conflict.
Israel captured east Jerusalem in 1967 and later annexed it. The Palestinians want the Arab sector of the city to serve as the capital of a future state.
The expanded Jerusalem boundaries under Israeli control include more than a dozen Arab villages around the city, as well as Palestinian neighbourhoods in the city itself.
Ami Ayalon, a Labour Party candidate, told Israel TV on Sunday: "When there will be a final arrangement with the Palestinians, the Arab neighbourhoods [of Jerusalem] won't be part of the state of Israel."
Labour is lagging in polls but is considered a prime candidate to form a centre-left governing coalition with the expected winner, Kadima, founded by Ariel Sharon, the ailing Israeli prime minister.