Heparanase is an endoglycosidase that cleaves heparan sulfate side chains. In many cases, heparanase induction correlates with increased tumor growth and metastasis, thus encouraging the development of heparanase inhibitors as anti-cancer drugs. We investigated the impact of host- vs. tumor- derived heparanase on cancer progression, emphasizing the cross talk between the epithelial, stromal and immune compartments of the tumor and its microenvironment. To this end, we utilized heparanase knockout (Hpa-KO) and transgenic (Hpa-Tg) mice to investigate tumor development following inoculation with cancer cells. We found that cancer cells produced bigger tumors in Hpa-Tg vs. control mice. Likewise, smaller tumors were developed by those cells when inoculated in Hpa-KO mice. Notably, we found that reduced tumor growth in Hpa-KO mice was associated with accumulation of macrophages (MФ) in the tumor periphery. Moreover, over expression of MIP2 in LLC cells results in reduced tumor weight when implanted in control but not in Hpa-KO mice. In KO mice, the recruited MФ arrest at the tumor periphery and are significantly less activated. Implantation of control, but not KO MФ, together with LLC cells eradicates tumor growth. Furthermore, the number and activity of immune cells (i.e., MФ, T-cells, NK and dendritic cells) recruited to the tumors was elevated only when control MФ were implanted. In vitro, the invasion and migration capacity of the Hpa-KO MФ was reduced. Real time PCR analyses reveal that most of the cytokines are expressed at lower levels in Hpa-KO MФ vs control.