"The proposal is unacceptable to the prime minister. He spoke with the defense minister this morning and it was decided that the proposal will be frozen," an official in Netanyahu's office said.
Israel's defense ministry had earlier introduced a new policy that would have effectively banned Palestinians from traveling on the same buses as Israelis.
The three-month trial scheme also required Palestinians, who commute to Israel to work, to enter and exit West Bank through the same point.
Hundreds of Palestinians travel each day to work in Israel from the occupied West Bank, mainly in the construction business, using travel permits each time they cross.
