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An Israeli police officer wearing a gas mask walks past a car set on fire by Palestinian rioters during clashes outside Occupied Jerusalem's Old City. Image Credit: AP

Occupied Jerusalem: An Israeli security guard killed a Palestinian in an Arab neighbourhood of occupied Jerusalem on Wednesday, triggering clashes between police and rioters, including in the compound of the Al Aqsa mosque.

Police said they entered the mosque compound to push back Palestinians who had thrown rocks at the nearby Jewish prayer site.

The Palestinians withdrew into the mosque, Islam's third-holiest shrine, and there were no immediate reports of casualties or further confrontations, a spokesman said.

Palestinian officials said the killing of a 32-year-old resident of occupied East Jerusalem and subsequent police response had undermined nascent US-sponsored peace negotiations.

Israeli authorities said the guard, who provided government-funded protection for a small Jewish colony in the Silwan district, opened fire on dozens of Palestinians who had blocked and stoned his car before dawn.

"It was his life or theirs," said Ariel Rosenberg, spokesman for Israel's Construction and Housing Ministry.

Silwan residents took to the streets after the incident, overturning two cars, torching two others and throwing rocks at police and passersby. Police said they responded with teargas, water cannon and stun grenades.

Troubles with peace talks

At least seven Israeli civilians and a policeman were hurt in the clashes, police said. Silwan residents said two Palestinians were wounded in the initial shooting and more in later confrontations, but exact figures were not available.

Hundreds of mourners attended the funeral of the dead man, who had 5 children, and confrontations spread to the nearby Old City.

The flare-up came as peace talks between Israeli and Palestinians faced a crisis over the issue of Jewish colonies in the occupied West Bank and occupied east Jerusalem.

A partial Israeli moratorium on colony building expires on Sunday and Palestinians say they will quit the talks if Israel carries through with a decision not to extend the freeze.

Palestinian government spokesman Gassan Khatib said Wednesday's violence was evidence of Israeli poor faith.

"This violent escalation by the Israeli occupying forces represent destructive measures that defeat the peace building agenda," Khatib said.

"These illegal actions of continuing to place heavily armed settlers [colonists] in the heart of Palestinian neighbourhoods, result in daily provocations and violence against defenceless and unarmed Palestinians and paves the way for such crimes to continue."

Palestinians want occupied East Jerusalem as the capital of the state they intend to establish in the West Bank and Gaza Strip.

Palestinians torched cars and threw stones and firebombs at Israeli police in Silwan last month after residents reported that colonists had tried to cross a mosque courtyard to reach an ancient spring where religious Jews conduct ritual ablutions.