Rail transit plays a significant role in the operation of an efficient and effective urban public transportation system. Safety and capacity are some of the most crucial objectives in railway operations. The communication-based train control (CBTC) system is a continuous and automatic train control system that realizes constant and high-capacity train ground two-way communication. In this study, a dynamic headway model of the ‘softwall’ moving-block approach is proposed for CBTC to increase the track capacity and improve dispatching efficiency based on the train trajectory prediction. For this precise trajectory prediction task, we introduce a hybrid trajectory prediction model to combine Long Short-term memory (LSTM) and Kalman Filter (KF) to extract the train’s local data features and learn the long-term dependencies, respectively. Then we present a dynamic headway model to maximize the train headway and reduce the track distance. The leading trains’ information is used to construct the iterative learning control strategy, and the predicted trajectory is input into the algorithm of the headway model. We use a simulation model of the rail network in Chengdu to demonstrate the effectiveness of our proposed approach. The results show the Mean Absolute Error (MAE) of the predicted trajectory retreated to 93.97 cm and reductions in operation headway of at least 64.33% under the dynamic headway model versus the traditional moving-block model.