All scholars agree on the following two points:
1. Sexual intercourse if forbidden between a man and his wife while she is menstruation.
This ruling is established by the Qur'an: "And they ask you about menstruation. Say: It is a discomfort; therefore keep aloof from the women in their menstrual discharge." [Sūrah al-Baqarah: 222]
2. It is permissible for the husband and wife to enjoy intimacy with each with the woman wearing a waistcloth that covers her body from between the navel and the knee, with the husband making no direct physical contact with the area between the navel and the knee.
This includes all intimate contact through kissing, caressing, embracing, touching and so forth.
We find proof that intimate contact between a husband and wife, short of intercourse, is allowed what Anas relates from Prophet Muhammad (peace be upon him). The Prophet learned that the Jewish men in their locality avoided eating together with their women while the women were on their menses, so he said: “Engage in everything except intercourse.” [Sahīh Muslim
This hadīth has a story behind it. Anas tells us:
Whenever a woman among the Jews was in her menses, the Jews would not eat together with her or remain in her company at home. The Prophet's Companions asked him about it, and then Allah revealed the verse: "And they ask you about menstruation. Say: It is a discomfort; therefore keep aloof from the women in their menstrual discharge." [Sūrah al-Baqarah: 222]
Then the Prophet (peace be upon him) explained: "Do everything aside from engaging in intercourse."
When the Jews heard this, they said: "This man does not want to leave anything of our ways without doing something differently."
There is another extremely important hadīth related to this matter.
`A'ishah, the Prophet's wife, relates: "Allah's Messenger (peace be upon him) used to instruct me to wear a waistcloth, then he would touch me during my menstrual period." [Sahīh al-Bukhārī
(300) and Sahīh Muslim
The same practice is narrated from the Prophet's wife Maymūnah. [Sahīh al-Bukhārī
(303) and Sahīh Muslim
Because of the prophet’s practice of having his wife use a waistcloth, scholars differ regarding physical contact with the woman's bare skin in the area between the navel and the knee, apart from the vagina itself.
The first opinion is that it is permissible for the husband and wife to allow direct physical contact with the woman's body in the area between her navel and knee while she is menstruating. This is the opinion adopted by the majority of scholars, including Ahmad b. Hanbal, Ishāq al-Rāhawayh, Abū Thawr, and al-Awzā`ī.
They argue that the hadīth where the Prophet (peace be upon him said: "Engage in everything except intercourse" is general in its meaning. It clearly states that only intercourse is prohibited. Everything else between a husband and wife is therefore permitted.
As for the hadīth that describe the Prophet's practice of having his wife don a waistcloth, this shows what is preferable, since this is the Prophet's action. It does not indicate that it is prohibited to touch what is between the woman's navel and her knees while she is menstruating.
This is strengthened by another hadīth related from a number of the Prophet's wives that: "The Prophet (peace be upon him), when he wanted to be with his wife while she was menstruating, would have her cover her private area with a cloth." [Sunan Abī Dāwūd
Though there is some disagreement about this hadīth, many scholars uphold its authenticity, including Ibn `Abd al-Hādī, Ibn Rajab, and al-Albānī.
This hadīth shows that, contrary to the assumption of many jurists, it was not necessary for the waistcloth to cover everything between the navel and the knees. What mattered was to cover the private area, merely as a precautionary measure.
Other scholars prohibited direct physical contact with the woman's body in the area between her navel and knee while she is menstruating. This is the opinion adopted by the Hanafī and Mālikī schools of though. It is also the official view of the Shāfi`ī school of law, as asserted by al-Nawawī in al-Majmū`
and Rawdah al-Tālibīn
It seems that the strongest position is a moderate one:
If the husband and wife fear that their desires are too strong and they are likely might fall into sin if they allow touching between the woman's navel and her knees, then they should not do so. This is to merely a precaution to prevent their falling into an act of disobedience.
However, touching the area between the woman’s navel and knees is unlawful while she is menstruating.
Al-Nawawī concedes in his commentary on Sahīh Muslim
that: "This way of looking at the matter makes good sense."
And Allah knows best.