Yishai Schlissel is serving a life sentence for his 2015 stabbing spree in which he killed a 16-year-old girl and wounded seven other people.
That attack came shortly after he had been released from prison after serving a sentence for stabbing several people at the 2005 pride march.
Police say that even behind bars, Schlissel has been plotting to further harm gay pride participants. Schlissel was taken for questioning from his cell and his brother, Michael, was arrested as an accomplice.
The heavily secured march has been a point of contention for years in this deeply divided city.
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Known for its rich religious history and tradition, Jerusalem holds a modest gay pride parade annually, in contrast to the raucous one in the liberal Israeli city of Tel Aviv, which this year drew some 200,000 people.
Even so, it has faced much resistance from ultra-Orthodox extremists who have protested it and deemed it an "abomination."
Jerusalem's secular mayor, Nir Barkat, said this week that while the gay community has the right to march, he will forgo the event because it is offensive to the city's many religious residents.
Responding to criticism from the gay community, Barkat laid flowers ahead of the march at the site where 16-year-old Shira Banki was killed last year.