The strike comes after Menahem Mazuz, the Israeli attorney general, announced on Sunday that there would be no legal action against police over the death of 12 Arab Israelis and a Palestinian in October 2000.
The decision has led to relatives accusing the justice system of discrimination.
A 2003 state commission found that the police were largely to blame for the civilian deaths during protests in Sakhnin in support of the Palestinian uprising.
On Monday, a group of Arab Israeli representatives, the so-called "Follow-up Committee", urged all Arab Israeli businesses and public services to join a general strike in protest at the closure of the investigation.
Thousands of protesters took part later in a demonstration in central Sakhnin.
Police prejudice
Mazuz said there was insufficient proof for a conviction and that the families of the victims would not allow post-mortems to be carried out for ballistics purposes.
Representatives of the Arab minority reacted angrily to the news.
Shawki Khatib, the head of the Follow-up Committee, accused Israel of "giving its backing to the murder of Arab citizens".
Al Jazeera's Ayman Mohyeldin reporting from Sakhnin said: "The organisers of today’s event have put the number of Palestinians participants at about 15,000.
"Today the Palestinians came here, had a loud message....They wanted the world to know that they live in a system where they cannot get any justice."
The Orr Commission's report of September 2003 found that government prejudice and police incompetence lay at the heart of the incidents during the pro-intifada demonstration.
Israel's Arab minority today accounts for 1.2 million of Israel's seven-million population.