"Following up with the court's decision... the settling of the house by those who purchased it was approved today (Sunday)," Ya'alon said, adding that a restricted number of families had been allowed to move into the building, Xinhua reported.
The four-story building is located in the old city of Hebron in the part populated by Jewish settlers.
The Jewish settlers said the original Palestinian owner of the premises sold the building in 2007 to a Jew in Brooklyn with ties to the local community, who then handed over the ownership to them.
Also on Sunday, media reports said that Israel declared 243 acres of lands in the Gush Etzion block of settlements in the West Bank as state-owned land, following the recently given authorisation of Defence Minister Ya'alon.
The move would in affect allow Israel to expand the settlements Neve Daniel, Elazar and Alon Shvut in the bloc and also include an illegal outpost called Nativ Ha'avot, which would make it in fact legal amid the declaration.
Nativ Ha'avot is an illegal Jewish outpost built in 2001 on private Palestinian land and is now home to 50 settler families.
The settlement issue may further shadow the faltering peace talks between Israel and the Palestinians.