Soldiers fired tear gas and rubber bullets at about 300 Palestinians marching from a refugee camp in Bethlehem to former Palestinian villages now occupied by Israeli settlers, the Palestinian Ma'an News Agency reported.
The demonstrators were observing Nakba Day, or "the day of catastrophe," which marks the day after Israel became independent 65-years ago and Palestinians were forced out of their homes.
An Israeli army spokeswoman said soldiers attacked the demonstration as it approached the old town of al-Khader after about 150 Palestinians began throwing rocks.
The coordinator of a committee against settlements was detained, but the spokeswoman denied anyone was arrested.
A separate rally in Tel Aviv was peaceful, with families affected by the 1948 displacement reading testimonials, the Times of Israel reported.
Nearly 50 people spoke in both Hebrew and Arabic outside Tel Aviv University relating the experiences of Palestinian and Israeli families' that stemmed from the displacement of Arabs following the creation of the state of Israel.