Suspected Jewish extremists punctured the tyres of more than a dozen Palestinian-owned vehicles in Israeli-annexed east Jerusalem and sprayed a racist slogan, police said on Monday.
Spokeswoman Luba Samri said the incident occurred in Ein Aluza, near Silwan which lies just south of the Old City.
An AFP correspondent said 19 vehicles were damaged, with Hebrew graffiti on a nearby wall reading: "Arab labour = assimilation" and more on a van saying: "Enough of the assimilation".
Thousands of Palestinian workers and labourers are employed across Israel every day, and the use of the word "assimilation" is a negative reference to Jews and non-Jews mixing.
Monday's crime appeared to be a "price tag" attack, a euphemism for hate crimes by Jewish extremists that generally target Arabs.
Initially carried out in retaliation for state moves to dismantle unauthorised settler outposts, the attacks have become a much broader phenomenon targeting non-Jews and anyone seen as hostile to the settlers.
Last week, the justice ministry pressed charges against three settlers for setting fire to two Palestinian vehicles in the West Bank in November.