Al Jazeera's Ayman Mohyeldin, reporting from East Jerusalem, said minor clashes between Palestinians and Israeli police broke out in front of the gate as police prevented Palestinians from participating in the gathering.
"The situation remains tense as police maintain a very heavy presence here outside Damascus gate," he said.
"This comes on the heels of a year when Palestinians in occupied East Jerusalem have been trying to celebrate Jerusalem as the capital of Arab culture.
"But throughout the course of the past calendar year, Israeli officials have prevented any kind of Palestinian celebrations [and] Palestinian national festivals taking place here.
"It is endemic to what Palestinians describe as a curbing of their right to freedom of expression."
Israel captured the area in the 1967 Six Day War, annexing it and claiming all of the city as its eternal capital.
But the Palestinians have designated East Jerusalem as the capital of any future Palestinian state.