By Allyn Fisher-Ilan JERUSALEM, Oct 18 (Reuters) - Israel's High Court urged the army on Wednesday to reconsider its denial of entry to a Palestinian woman who wants to study at an Israeli university, challenging the military's refusal of such cases. The decision tested Israel's restrictions on Palestinian travel, rules that have been tightened since the Islamist militant group Hamas formed a Palestinian government in March. A three-justice panel urged the state to negotiate a plan with lawyers to allow Palestinian Sawsan Salameh, 29, of the occupied West Bank to enter Israel on a limited basis to pursue a doctoral degree at the Hebrew University of Jerusalem. The army had barred Salameh from entering Israel despite appeals from the university which accepted her for chemistry studies in a school term beginning this month. Chief Justice Dorit Beinisch urged the sides to reach a deal within seven days which she would review before a final ruling. "We don't necessarily see a reason to deny entry on an individual basis," Beinisch told the court of Salameh's case. Justice Elyakim Rubinstein, a former Israeli attorney-general and peace negotiator, said the state should "encourage seeds of cooperation" with Palestinians. "At some point we would like to achieve a measure of normalcy in ties with our neighbours and if there are no security issues, then perhaps we can come up with some kind of rubric" to resolve the case, Rubinstein said. The justices declined to deliberate Israel's overall ban on entry to Palestinians. Israeli prosecutor Avinoam Segal agreed to discuss a permit to allow Salameh limited entry, of two to four times a week. LAWYER "VERY PLEASED" The decision was a departure from recent rulings such as a landmark court decision in May that upheld a law restricting entry to Palestinians married to Israelis. Salameh, of Anata, a West Bank town just outside Jerusalem, could not attend the hearing. Her lawyer, Sari Bashi, of the Israeli advocacy group Gisha, said the decision was encouraging. "We are very pleased. What matters now is whether the state listens to the court recommendation," Bashi said. As the court sat, the heads of six Israeli universities published a letter to Defence Minister Amir Peretz demanding he "cancel the sweeping ban" on Palestinian students, and permit entry to those not suspected of security offences. Israel has barred Palestinian entry since shortly after violence erupted in September 2000 after failed peace talks for security reasons such as to keep out suicide bombers. After Hamas's election victory, the rules were tightened and even the few Palestinians who seek to study at Israeli universities have been routinely denied permits. Segal said the government particularly objected to changing the policy while Hamas was in power, and if an exception were made for Salameh, thousands more could apply. "True, we are speaking about a very talented young woman, and one is drawn perhaps to reach out a hand, but we also have a certain security situation here," Segal said.