The Israeli Supreme Court has called on the government to reconsider its almost total ban on Palestinian students leaving the Gaza Strip to study abroad.
The court said the policy was harming prospects for future coexistence between Israelis and Palestinians.
This follows the reinstatement by the US state department of Fulbright grants to seven Palestinians in Gaza.
The scholarships had been withdrawn because Israel would not provided exit permits to the students.
Israel tightened its blockade of Gaza after Hamas seized power there a year ago, largely cutting off the territory from the outside world.
Petition
The Israeli Supreme Court heard on Monday a petition filed by Israeli human rights group Gisha on behalf of two Palestinian students whose requests to leave Gaza to study in Britain and Germany have been rejected by Israel.
Palestinian human rights groups in Gaza said hundreds of students would miss deadlines to pursue studies at universities abroad if Israel did not relax travel restrictions.
A member of the court hearing the petition said Israel's policy was harming "any chance of coexistence" between the Jewish state and its neighbours in Gaza.
The panel said the policy should be reviewed within two weeks, but the oral comments are non-binding on the Israeli government.
Human right groups and some Israeli politicians have described the policy of not letting the students out as "collective punishment".
Israel says that as long as Palestinian militants fire rockets from Gaza at Israeli towns, nobody - apart from the most urgent of medical cases - can leave.
The prestigious Fulbright scholarships are run by the US state department.
On Friday US Secretary of State Condoleezza Rice has promised to investigate the withdrawal of the scholarships.
"If you cannot engage young people and give complete horizon to their expectations and to their dreams, then I don't know that there would be any future for Palestine or, frankly, since I believe the two-state solution is so important to Israelis and Palestinians, to the people of that region who want to have decent lives," Ms Rice said.
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