Thousands of Israelis and Palestinians gathered in east Jerusalem to support Palestine's bid for UN recognition [AFP]

Hundreds of Israelis and Palestinians have staged a peaceful march in east Jerusalem to support the Palestinian bid for United Nations recognition.

The marchers on Friday waved Palestinian flags and carried signs reading, "Everyone has the right to an independent state," "Marching to independence" and "Only free people can negotiate for peace".

The demonstrators said the UN initiative was an essential step as hopes of negotiations between Israel and the Palestine Authority have dimmed.

"This march has been considered by many as carrying special significance, since it will serve as a litmus test for the extent of popular support among Israelis and Palestinians for the diplomatic efforts for a declaration of independence," organisers said in a statement.

They marched from the Old City's Jaffa Gate to the neighbourhood of Sheikh Jarrah, the site of weekly protests against efforts by Jewish settlers to move into largely Arab neighbourhoods in the city.

Organisers put the numbers at 5,000, while public radio said only 2,000 took part, but police said there were not even 500.

Israeli newspaper Haaretz reported that "almost 2,000 Palestinians and Israelis attended the 'March for Independence'".

Organisers had said they feared right-wing Israeli groups would try to disrupt the march, but there were no immediate signs of disturbance amid a heavy police presence.

The newspaper added that Israeli politicians Zehava Galon of the political party Meretz and Dov Hanin of the leftist political party, Hadash also participated.

The route is the reverse of a march held last month by right-wing Israeli youths to commemorate Israel's capture of east Jerusalem in the 1967 Middle East war.

The Palestinians plan to approach the UN General Assembly to recognise a Palestinian state in September, a move opposed by Israel which says progress can only be made through negotiations.

Meanwhile, the Arab League has said it will apply to upgrade the Palestinians to full member status at the UN, according to a draft statement from a league meeting in Qatar on Thursday.

"It was decided to go to the United Nations to request the recognition of the state of Palestine with East Jerusalem as its capital and to move ahead and request a full membership," said the communique, a copy of which was obtained by Reuters.