Agencies contributed to this report.
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"I welcome this decision, which shouldn't have needed to be made," said city councilman Yossi Havilio. "But better late than never."
Havilio was one of the two panel members to vote in June against naming the streets after rabbis.
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The family has lived in the building since 1975, he added, arguing they are "victims of a political game by the Israeli courts and the settler organisations".
Israel occupied east Jerusalem in the 1967 Six-Day War and later annexed it in a move never recognised by the international community.
Israel considers all Jerusalem its undivided capital but the Palestinians see the eastern part as the capital of their future state.
Around 200,000 Israeli Jews now live in east Jerusalem in settlement homes considered illegal under international law.
Read more: Unravelling power, control and the misuse of international law for Palestine with Noura Erakat
Under a decades-old Israeli law, if Jews can prove their families owned property in east Jerusalem before the 1948 war that led to the creation of Israel, they can demand that Israel's general custodian office release the property and return their "ownership rights".
No such law exists for Palestinians who lost their land.
Peace Now said the family was one of around 100 families threatened by eviction lawsuits filed by Ateret Cohanim, in total putting around 700 people at risk of eviction.
It said the eviction notices were an "attempt to displace a Palestinian community and to replace it with an Israeli one, in the heart of a Palestinian neighbourhood in East Jerusalem."
Agencies contributed to this report.
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