The Israeli government had in November voted to allow the immigration of some 9,100 Ethiopians known as Falash Mura, descendants of Ethiopian Jews who converted to Christianity, many under duress, in the 18th and 19th centuries.
But on March 7, an official from Prime Minister Benjamin Netanyahu's office informed members of parliament the decision would not be implemented because of budgetary constraints.
Police and organisers estimated the crowd at up to 2,000 people for Sunday's march, which ended outside Netanyahu's office.
"Our children, our parents are in Ethiopia," they chanted, marching alongside elderly residents wearing more traditional garb, some leaning on canes.
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Antaihe Cheol, a 30-year-old resident of northern Israel, said his father and brother have been waiting to immigrate for 20 years.
"This is simply discrimination," he told AFP.
His friend Ashebo noted that the government actively encourages immigration of Jews from France, the United States and Russia.
"When it comes to Jews from Ethiopia -- everyone refuses," he said. "It's embarrassing."
Leading the demonstration was MP Avraham Neguise, himself an immigrant from Ethiopia and a member of Netanyahu's Likud party.