TEL AVIV—Israel’s highest court has struck down a controversial judicial overhaul law enacted last year by the government of Prime Minister Benjamin Netanyahu that would have limited the justices’ power.

Israel’s Supreme Court ruled against a central piece of a judicial overhaul that Netanyahu was pushing before the war in Gaza erupted last October. The court struck down a law, which was passed in July and was akin to a constitutional amendment, that would have taken away the court’s powers to abrogate government decisions it deems to be “unreasonable in the extreme.”