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A Palestinian demonstrator holds stones during clashes with Israeli troops, not seen, in the occupied East Jerusalem neighbourhood of Issawiyeh. Image Credit: AP

Occupied Jerusalem: Israel on Wednesday lifted its tight restrictions on Palestinian access to Occupied Jerusalem's holiest shrine and called off an extended West Bank closure after days of clashes between Palestinians and Israeli security forces.

While Israel moved to end the lockdown, it also kept thousands of police officers on alert as an uneasy calm settled over the holy city.

The violence took place against the backdrop of deep Palestinian frustration over a yearlong standstill in peace talks and dovetailed with the worst US-Israeli diplomatic feud in decades.

On Tuesday, the US and Israel signaled they were trying to move beyond the crisis that erupted when Israel announced plans to build 1,600 colony homes in disputed east Occupied Jerusalem during US Vice President Joe Biden's visit last week.

Israel, citing intelligence reports, canceled the restrictions on Palestinian access to the Al Aqsa mosque compound, Islam's third-holiest shrine, a day after the heaviest violence in months broke out across the city.

Hundreds of Palestinians set tires and garbage bins ablaze and lobbed rocks at Israeli riot police, who responded with rubber bullets, tear gas and stun grenades.

The unrest was set off by persistent rumours that Jewish extremists were planning to take over the compound.

The conflicting claims to the complex make the future of the holy city the most charged issue in the Israeli-Palestinian conflict.

In a measure of how tense the situation remained on Wednesday, officials scrambled to respond to an inaccurate report that Israel had issued new construction bids for an additional 309 Jewish colonies in east  Occupied Jerusalem.

Also, Netanyahu immediately distanced himself from his brother-in-law's characterisation of US President Barack Obama as "anti-Semitic" because of the US leader's objection to Israeli colony homes construction in east Occupied Jerusalem.

In a statement issued by his office, the prime minister said he "strenuously" objected to the comments made by Hagi Ben Artzi and expressed "deep appreciation" for Obama's commitment to Israel's security.

Netanyahu himself objects to partitioning Occupied Jerusalem and exempted the city's eastern sector from a recent settlement slowdown he enacted in the West Bank.