The occupation forces raided the compound, Islam’s third holiest site, as worshippers were leaving after Friday prayers, reported Aljazeera's correspondent Shireen Abu Aqla.
She quoted witnesses as saying they fired rubber bullets and tear gas.
While the police said the clashes erupted after worshippers threw stones at them,
Palestinians said police acted without provocation.
"No one threw stones," said Adnan Husayni, director of the Islamic Waqf, which oversees the compound. "They (police)
started doing this every Friday to scare elderly worshippers as younger ones are already banned. This is a flagrant violation of freedom of worship."
Police said hundreds of Muslim worshippers, leaving Friday prayers, threw stones at security men and Jewish worshippers praying at the western wall of the site known to Muslims as al-Buraq wall.
Shmuel Rabinovitch, chief rabbi at the wall - which became the most sacred site of Jewish prayer after being appropriated by Israel after its 1967 occupation of East Jerusalem - said police rushed in and evacuated worshippers after a single stone fell into the plaza.
The Islamic Waqf said more than 60 people were injured.
The mosque's imam urged for calm over loudspeakers as worshippers ran for shelter.
Thousands barricaded themselves within the two mosques in the walled holy compound.
Some were fearful of the clashes outside and remained holed up in two mosques, as police negotiated with Muslim authorities to remove them.
Husayni said they were trying to convince the police to move away from the compound, to allow worshippers to go home.
A total of 14 worshippers were detained.
For several years, Israeli forces have regularly prevented worshippers from the occupied West Bank and Gaza Strip and men under the age of 45 from praying at the mosque.
Palestinians carry the body of
Muhammad Abid, killed in Gaza
The second Palestinian uprising began in 2000 after an incursion into the Islamic site by Ariel Sharon, Israel's opposition leader at the time and now prime minister.
Israel seized East Jerusalem, including the ancient Old City - where al-Aqsa is located - in the 1967 Middle East war and annexed it in a move not recognised internationally.
The Palestinians want East Jerusalem as capital of the state they hope to establish.
Five Palestinians killed
Meanwhile, in the southern Gaza Strip the body of Muhammad Abid, 19, killed during a tank raid on Friday in the refugee camp of Rafah, was buried.
The raid by tanks and armoured bulldozers sparked exchanges of fire between Israeli occupation soldiers and resistance fighters in the camp, a frequent flashpoint during a three-and-a-half-year-old Palestinian uprising.
Later in the day an Israeli tank shelled a border area with the Gaza Strip, killing one Palestinian and injuring another, Palestinian security officials said.
The tank fired five shells in an off-limits military zone between the Buraij refugee camp in the central Gaza Strip and the border fence with Israel, the officials said.
Nasir Hajahjah, 16, was shot in the
chest and head near Bethlehem
An occupation army spokesman said troops spotted three "suspicious figures" in the border zone and fired on them when they approached the fence, killing one.
Elsewhere in the strip on Friday night, another Palestinian was killed by army fire east of Gaza City, Palestinian security sources said.
Israeli occupation troops killed a 16-year-old Palestinian near the West Bank town of Bethlehem after opening fire at stone-throwers.
In a separate incident in the central Gaza Strip, Israeli soldiers shot dead a Palestinian, who they said was a "gunman", but who was a farmer according to Palestinian security sources.