Police later announced that the site, which Jews call the Temple Mount and Muslims the Noble Sanctuary, would reopen to worshippers and visitors Wednesday morning.
The Palestinian Authority says it believes Israel may have been the firebombing attack on its own police station at the Temple Mount on Tuesday, as part of a plot to spark a confrontation that would create a pretext for closing the site to Muslim worshipers.
Worshippers on the mount have staged protests and clashed with police over the site.
Jordan, the official custodian of Muslim holy sites in Jerusalem's Old City, had accused Israel of a "new escalation" after it issued a temporary injunction barring top Waqf officials from visiting the Al-Aqsa mosque compound in response to clashes that erupted as worshipers forced their way into Bab al-Rahma. Abbas' office said the Palestinians also were in touch with various sides, including Jordan.
No serious injuries or damage to holy sites were reported.
A fire rages in a police post on Jerusalem's Temple Mount after a Molotov cocktail was thrown at it on March 12, 2019.
Palestinian Authority President Mahmoud Abbas' office condemned "the unsafe Israeli escalation in the blessed Al-Aqsa Mosque" and urged the worldwide community to intervene after the shutdown.
Palestinian political groups said escalating tensions around Al-Aqsa Mosque, the third holiest site in Islam, is a continuation of arbitrary policies of Israel against Palestinians.
The Israelis then shut the compound's gates and prevented Palestinians from entering the Old City through the Damascus Gate, a major entrance to the ancient walled area.
The holy site has experienced a series of tense standoffs in recent weeks after Muslim worshippers reopened an area known as the "Gate of Mercy", closed by Israel in 2003.
It is located in east Jerusalem, occupied by Israel in the 1967 Six-Day War and later annexed in a move never recognized by the global community.
Israel closed the structure claiming it was used by a heritage organisation with ties to the Hamas militant group.
Recent weeks have seen an uptick in violence on the Temple Mount.
High-level Israeli and Jordanian officials have been holding talks in the hope of defusing the situation. The Western Wall is the last supporting wall of the Temple Mount, and is the centre for Jewish prayer from around the world.
Videos circulated on social media show Israeli forces arresting several protesters and violently attacking women.
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