Palestinians make up 35 percent of Jerusalems population, said the study released as Israel observed Jerusalem Day, marking 42 years since Israeli forces captured the eastern part of the city in the 1967 Six Day War.
Jerusalems population currently stands at 760,800, with 492,400 Jews and 268,400 Arabs, said the report published by the Jerusalem Institute for Israel Studies (JIIS).
Since Israel captured the eastern part of the contested city in 1967, the Arab population has increased by 291 percent, the Jewish population grew by 149 percent and the citys population overall rose by 186 percent.
The increase in the Palestinian population comes despite restrictions that Israel has imposed on West Bank residents from moving to, or even visiting Jerusalem in the wake of the second Palestinians uprising.
The change in demographics is explained by both the higher birth rate among Palestinians and by the fact that more Jewish residents left Jerusalem in 2008 than moved to the city.
Arab birth rate in Jerusalem stood at 27.7 births per 100 residents, compared with 20.9 births per 100 residents among Jews.
Among Jews 4,900 more people left Jerusalem than moved into the city, whose population is increasingly religious and poor.
Some 60 percent of Jewish students were enrolled in ultra-Orthodox schools in 2008 while some 74 percent of Arab children were living below the poverty line, compared with 48 percent of Jewish children, the study said.
The mortality rate among the Palestinian population stood at 5.1 deaths per 1,000, compared with 2.7 deaths per 1,000 among the Jewish population.
Israel considers Jerusalem its eternal, undivided capital. Palestinians want to make east Jerusalem the capital of their promised state.