The protesters gathered at Rabin Square in the centre of Israel's commercial capital, waving Palestinian flags and wearing headscarves as police officers stood by in case of disturbances.
Arab Israelis -- the descendents of Palestinians who stayed in Israel after the Jewish state's establishment -- had been striking across the country since the morning in protest at demolitions of Arab homes, especially in Jerusalem.
"This is one of the most painful issues for the Arab public," said prominent Arab Israeli lawmaker Ayman Odeh in a statement shortly before attending the rally.
"For a family that loses its home that was built on private land, its whole world is destroyed."
The Higher Arab Monitoring Committee (HAMC), which represents Arab communities in Israel, slammed "the ongoing harsh policy of incitement to hatred against Arabs which was launched by Prime Minister Benjamin Netanyahu during the elections."
It was referring to an election day statement by Netanyahu on March 17 when he urged his rightwing supporters to turn out because Arab Israelis were going to the polls "in droves".
The remarks from Netanyahu -- who won a surprise victory in the polls -- drew a rebuke from US President Barack Obama and were widely criticised in Israel and abroad.
The decision to hold a rally in Tel Aviv rather than in one of the Arab cities was aimed at bringing the crisis to the attention of Jewish Israelis, and also to highlight what is perceived as growing anti-Arab racism.
At the rally, a small number of Jewish Israelis could be seen holding up Israeli flags, jeering at the Arab protesters, but there was no confrontation.
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- 'War on Arabs' -
Both the strike and the rally were backed by the Joint List, headed by Odeh, which groups the main Arab political parties and came third in the election.
Arab Israelis are Palestinians who remained on their land when the state of Israel was established in 1948. Today, along with their descendents, they number about 1.4 million, nearly one fifth of Israel's population.
"The government is waging a war on Arabs," Jeryes Matar, the HAMC's secretary-general, said at the demonstration.
"The battle to save these houses is the battle to save our existence!"
There has been a string of demolitions of Arab homes in northern and central Israel, as well as in the southern Negev desert. Campaigners say tens of thousands more have demolition orders against them.
Arab Israelis complain that discrimination by the state makes it impossible for them to obtain planning permission to expand their communities.
The result is that many families resort to building homes without permission, leaving them liable to demolition.
Although Arab Israelis make up some 17 percent of the population, only 4.6 percent of new homes are built in Arab areas, according to Arab rights group Adalah.
In a February report, Adalah blamed the housing crisis on a "deliberate, consistent, and systematic government policy" that gives preference to development in Jewish areas over Arab ones.
In 2014, the Israel Land Authority published tenders for construction of 38,261 housing units in Jewish communities compared with only 1,844 in Arab communities, the report said.