Israeli troops have begun dismantling a concrete wall erected nine years ago to protect the Jewish settlement of Gilo on the southern outskirts of Jerusalem.
The settlement, which Israel regards as a neighbourhood of Jerusalem, came under fire from the Palestinian village of Beit Jala in 2000.
An Israeli military spokesman said the wall was no longer needed because security had improved.
The wall was a precursor to the barrier built along the West Bank.
Israel says the barrier is necessary to stop suicide attacks, but rights groups have complained that it has made life for Palestinians very difficult.
Israel built the settlement at Gilo on land it captured in 1967.
The settlement lies across a narrow valley from Beit Jala, and so became a target for Palestinian militants during the second Palestinian uprising against Israeli occupation in 2000.
The Israelis built the 3m-high (10ft) concrete wall to protect the settlement, but Israeli officials say security is no longer a problem.
Engineers will now spend two weeks taking the wall down.
"This is the first time that we have moved such a structure from a neighbourhood that was directly hit by sniper fire and shells," said military spokeswoman Lt Col Avital Liebovich.
Almost 500,000 Jews live in more than 100 settlements built on occupied territory. The settlements are illegal under international law, though Israel disputes this.
The Palestinians have refused to attend peace talks until Israel stops building settlements on occupied territory.