The Lebanese government has granted some 400,000 Palestinians living in the country the right to work in professions they had been banned from for decades.
Human rights groups welcomed Tuesday's parliamentary vote as a step forward but said the bill still fell short of what is needed.
Under the new bill, Palestinians still cannot own property and are not eligible for social security or health insurance benefits.
Because they will be treated as foreign workers, they are also still barred from certain occupations that the country's laws allow only Lebanese to hold.
Being essentially stateless also means further hardships for Palestinians.
Gaining entry as a foreigner into prestigious jobs in Lebanon such as law, medicine and engineering requires the prospective employee to belong to the relevant professional society, most of which require the employee's home country to reciprocate.
For a Palestinian, there is no home country.
"If you're a Palestinian born and raised in Lebanon and your dream is to become a doctor, you're out of luck", Nadim Houry, the Beirut director of Human Rights Watch, told the Associated Press news agency.
"...the Lebanese unanimously agree on the Palestinians' right of return and reject naturalisation."
Hassan Fadlallah, Lebanese member of parliament
Ali Hamdan, an aide to the speaker of parliament, told the AP that the bill represents the government's attempt to "solve a historic crisis".
The plight of Palestinians in Lebanon dates back to the creation of Israel, in 1948, when war between Israel and its Arab neighbours forced hundreds of thousands of Palestinians to flee.
In 1970, during what became known as "Black September", King Hussein of Jordan expelled Palestinian refugees and fighters from his country, and Yaser Arafat, the leader of the Palestine Liberation Organisation, set up camp in Lebanon, further heightening tensions in the country.
There are now more than 425,000 registered Palestinian refugees, most living in 12 overcrowded and unsanitary camps in Lebanon.
Full assimilation into Lebanese life and citizenship has always been a touchy issue for Palestinians and Lebanese alike, since many on both sides - for various reasons - still hold on to the hope that Palestinians will return to their homes in Israel, the West Bank and Gaza.
"This is an important and basic step towards improving the humanitarian conditions of the refugees," Hassan Fadlallah, a Lebanese lawmaker, told Reuters news agency.
"It does not have any political effects because the Lebanese unanimously agree on the Palestinians right of return and reject naturalisation."