Israel's High Court ruled to allow leaders of the extreme right to march bearing Israeli flags through the Palestinian majority town of Umm al-Fahm, near Haifa, on March 24.
The march was first planned in December but was cancelled by the police. The ruling to allow the march comes in the wake of a strong showing for the far-right politician, Avigdor Lieberman, in Israel's recent elections.
Lieberman's Yisrael Beitenu (Israel Our Home) party will occupy 15 seats in the new parliament. Along with Likud, Labour, Shas and United Torah Judaism, it forms part of the new coalition government led by Benjamin Netanyahu.
Palestinian activists in Umm al-Fahm called for a general strike to oppose the rally, declaring it a blatant attempt to incite hatred.
In the lead-up to the rally, the head of the Menashe Regional Council, Ilan Sadeh, said: "The court should have prevented this incitement. We will stand together tomorrow, Arabs and Jews, and we will not allow this march to take place."
The chairperson of the Israeli Arab nationalist party Balad, Jamal Zahalka, said: "We are not fighting this little fascist, but the big fascist — the one that has power over the mainstream Israeli politics …
"There are people like [Marzel] in the [Zionist] National Religious Party. These people have a history of shooting at Palestinians and I warn that if they come tomorrow carrying weapons, they will start shooting and this could escalate into a major disaster."
"Racism is not freedom of expression, it's a criminal act and the law should punish it," Zahalka said.
Before the march, 2500 Israeli troops were deployed to defend 100 demonstrators flying Israeli flags. During the rally, stun grenades and tear gas canisters were fired at the Palestinian protesters.
The march was headed by extreme right leader Baruch Marzel. After the rally he told Ynet.co.il on March 25 that the rally was "a great success, proving that if the police are willing, they can uphold both public order and the law."
Marzel is a former leader of the racist, anti-Palestinian Kach party. Kach is now banned as a terrorist organisation in Israel, the European Union and the United States.
"We intend on forming a monitoring committee to counter any infringements of the law in the Arab sector. The committee will be headed by Knesset [parliament] member Michael Ben Ari and other right-wing activists will serve as members as well," Marzel told Ynet.co.il.
"The committee will be made up of subsections, with each section in charge of different things, like building violations, affiliation with terror groups, and infringing on Jewish freedom of movement."
Extreme-right groups are contemplating holding processions in other Arab towns as well, he said.