Demonstrators waved black flags and vowed not to forget the killings by the village of Kfar Kassem, northeast of Tel Aviv, half a century ago, said YNet, the online version of Israel's Yediot Aharonot newspaper.
On October 29, 1956, Israeli border guards gunned down 49 villagers from Kfar Kassem as they worked in their fields. The Arab-Israeli farmers were unaware that Israel had imposed a nationwide curfew during the run-up to the Suez campaign against Egypt.
Speaking to demonstrators, Sammi Issa, mayor of Kfar Kassem, criticised recent moves to bring Avigdor Lieberman into the government of Ehud Olmert, the Israeli prime minister.
"Men such as him have no place in government or in parliament," Issa said.
Lieberman has endorsed controversial proposals for population and territory exchanges to settle the Arab-Israeli conflict. Earlier this year he called for all Arab-Israelis who deal with the Hamas government to be executed.
In a bid to strengthen his coalition, Olmert offered Lieberman the post of deputy prime minister and the ministry of strategic affairs, a new cabinet position dealing specifically with the Iranian nuclear situation.
During the Kfar Kassem massacre, the Israeli commander ordered his soldiers to open fire rather than take prisoners.
Several soldiers received stiff prison terms but were subsequently released having served just a fraction of their sentences.
There are more than one million Israeli Arabs and they account for 20 per cent of the Israeli population.