Suspected Israeli pro-settler activists vandalised Palestinian cars in Jerusalem on Monday, their second attack in a week in apparent retribution for plans to move 30 settler families from illegally built homes.

Israeli police are concerned there could be further attacks before a July 1 deadline to move the families.

"The main suspicion we are looking at is that it is a 'Price Tag' (attack)," police spokesman Micky Rosenfeld said, referring to violence by militant settlers who have vowed to exact revenge for any attempt to curb settlement in the occupied West Bank.

Palestinians fear Israeli settlements, built on land Israel captured in a 1967 war, will deny them a viable state, and they refuse to return to peace talks frozen since 2010 until their expansion is halted.

The U.N. World Court considers the settlements illegal but Israel, citing historical and Biblical links to the territory, disputes this.

The name "Ulpana", an area in Beit El settlement where the Supreme Court found that five apartment houses had been built illegally on private Palestinian land, was daubed on one of seven vehicles whose tyres were slashed in East Jerusalem.

On Friday, anti-Arab slogans were spray-painted on vehicles in Neve Shalom, a community of Jewish and Arab peace activists in central Israel.

Police suspect "Price Tag" activists were responsible and appointed an investigative team, but have not made any arrests.

Prime Minister Benjamin Netanyahu angered settlers last Wednesday when, at his urging, parliament defeated an attempt by ultranationalist lawmakers to legalise the Ulpana dwellings and thousands of others erected on Palestinian-owned tracts.

Netanyahu, a right-wing leader, has long banked on the support of settlers and their backers. His opposition to the attempt by the far-right to circumvent the Supreme Court over Ulpana, has left a reservoir of resentment among settlers.

The government plans to move the 30 families in Ulpana to alternative housing in a nearby military zone. In an apparent bid to placate settlers it said it would build 851 new settler homes in the West Bank, drawing Palestinian and international condemnation.