Palestinians, together with Israeli and foreign activists, stand near newly-erected tents in an area known as E1, near Jerusalem January 12, 2013.
The proposal to close a three-kilometer gap in the wall will prevent Palestinian access to E1, where activists erected a tented protest village last week, Israeli daily Haaretz reported on Monday.
If completed, the wall would surround Palestinian village al-Zayyem on both sides, the newspaper said.
Barak also decided to move ahead with building a road past al-Zayyem for Palestinians to travel from the southern to northern West Bank without entering Israeli settlements in E1.
The plan will be put to Israeli premier Benjamin Netanyahu for approval next week.