Israel abandoned house demolitions in 2005, on the recommendation of Moshe Ya'alon, who was then the army chief of staff and is now Defence Minister, who said they were counterproductive and promoted hatred that led to further attacks by militant groups.
The policy was used widely in response to suicide bombings during the second Palestinian intifada that broke out in 2000. Critics said it was ineffectual because the families affected received money to buy bigger and better houses.
It has been resurrected after security officials said the situation had changed.
Shaloudi's home was first on the list apparently because his attack on the Ammunition Hill tram station on October 22 was the opening salvo in a recent wave of violence that has left 10 Israelis and one foreign national dead.
Yehuda Glick, a right-wing activist, was also seriously injured in a shooting attack on October 29. Relatives said Israeli security forces forcibly evacuated all 50 residents from the five-storey block around 1am. They spent the night in a nearby tent used to stage local protests.
Ines Shaloudi insisted her son drove into the tram stop by accident and said he had been suffering from paranoia at the time, which had led to her making an appointment for him to see a psychiatrist.
Shaloudi was shot by police at the scene of the attack and later died of his injuries.
-Telegraph Group Ltd
Air of tension and fear over holy city
Streets are subdued, marketplaces are quiet and people are on edge in Jewish areas of Jerusalem.
The holy city has rarely seemed more divided.
"I'm really not safe, and before leaving the house I think twice," said Sara Levi, 22. "We are not calm, and we hope there is going to be an end to this, and that it is not just a beginning."
In Jewish parts of Jerusalem, traffic was lighter than usual and the crowds that normally pack the city's Mahane Yehuda open-air marketplace were thin.
"Business is weak today. It was worse yesterday," vegetable salesman Itzik Shimon said. "People are afraid. Can you blame them?"
In Parliament, a group of mothers implored MPs to hire more security guards for day care centres.
Police say they have sent an extra 1000 officers to the streets in recent weeks and stepped up their presence in Arab neighbourhoods.
-AP