There will be no Knesset vote on the controversial new conversion bill before the winter session, which begins in October.
Prime Minister Binyamin Netanyahu hopes that in the interval, the bill can be redrafted in order to make it more palatable to the Reform and Conservative movements.
Mr Netanyahu made his rejection of the bill clear at the weekly cabinet meeting on Sunday, where he said that "this law could create a schism within the Jewish people".
The bill, which was approved by the Knesset's Law Committee last week by one vote, was proposed by the committee chairman, MK David Rotem, of Yisrael Beiteinu. The bill would allow local rabbis in every town in Israel to perform giyur and allow only the Chief Rabbi to retro-actively revoke conversions.
While possibly liberalising the conversion process, the law has raised the ire of the leaders of the powerful Reform and Conservative movements in the US.
They object to the clause that stipulates that Israel will only recognise local conversions performed under the authority of the Orthodox Chief Rabbinate. This clause was necessary to obtain the support of the Charedi parties in the coalition.
According to aides to the PM, Mr Netanyahu has received messages from the American leaders saying he could not continue to rely on their political support in Washington if he allowed legislation that would not recognise conversions carried out by their movements.
Non-Orthodox Jews in the UK have also voiced their objections. In an email to its members, the Reform movement warned: "If we don't stop this new conversion bill now, we risk losing recognition in Israel of Reform and other non-Orthodox conversions for ever." Liberal Judaism chief executive Rabbi Danny Rich and Rabbi Jonathan Wittenberg, senior rabbi of Masorti, have both written to Mr Netanyahu. In his letter, Rabbi Rich urged: "Please do not allow this law to succeed in tearing Israel asunder from the diaspora that nurtures it."
Mr Netanyahu's opposition to the bill denied it the coalition votes necessary to its passage in the Knesset plenum and Mr Rotem withdrew it from a scheduled vote this week.
"The Prime Minister is wrong and misleading," said the MK. "The conversion law does not create a rift in the Jewish people. It deals only with conversion in Israel and does not change the current situation regarding conversions performed outside Israel."