Israeli police Thursday shot dead a Palestinian suspected of an assassination attempt on a hardline campaigner for Jewish prayer rights at Jerusalem's flashpoint Al-Aqsa mosque compound.

The attack sent tensions in the city soaring to a new high, following months of almost daily clashes between Palestinians and Israeli police in Jerusalem's occupied eastern sector.

In a bid to avoid further tensions, Israel ordered the closure of the Al-Aqsa compound to all visitors in an unprecedented move, drawing a furious response from Palestinian president Mahmud Abbas, who described it as "a declaration of war."

"This dangerous Israeli escalation is a declaration of war on the Palestinian people and its sacred places and on the Arab and Islamic nation," he said through his spokesman Nabil Abu Rudeina, warning it would only fuel "more tension and instability."

Israeli police announced the closure of the compound several hours after a gunman opened fire on Yehuda Glick, leaving him critically wounded.

Anti-terror police stormed the home of the suspected Palestinian gunman in Abu Tor, which borders the volatile east Jerusalem district of Silwan that has been the focus of months of confrontations between Palestinian youths and police.

"When they arrived at his house, the suspect began shooting at the force who returned fire, killing him," police spokeswoman Luba Samri said in a statement.

Police and border police forces were fanning out across the city to prevent any unrest, the statement said.

The assassination attempt appeared to be linked to months of tensions over the Al Aqsa compound, a site holy to both Jews and Muslims in Jerusalem's Old City.

The compound houses Islam's third holiest site, but is also the most sacred spot for Jews who refer to the site as the Temple Mount due to the fact it once housed two Jewish temples.

Although non-Muslims are allowed to visit the site, Jews are not allowed to pray there for fear it could disturb the fragile status quo.

Islamic Jihad member

Locals residents identified the dead suspect as Muataz Hijazi, and the radical Islamic Jihad confirmed he was one of their members.

"Islamic Jihad mourns their martyr Muataz Hijazi who was killed in Al-Thuri neighbourhood in Jerusalem after clashes with the occupation," the group said in a statement sent to AFP in Gaza City.

The neighbourhood where he was killed, Abu Tor, straddles west Jerusalem and the Arab eastern sector, which was seized by Israel during the 1967 Six Day War and later annexed in a move never recognised internationally.

An AFP correspondent at the scene said shots rang out shortly before 6:00am (0400 GMT) and around 20 armed police could be seen converging on a house as a police helicopter flew overhead.

Curious onlookers gathered on nearby rooftops, some chanting "Allahu akbar (God is greater)".

Shortly afterwards, local youths began throwing stones at the force and dragged a rubbish skip into the middle of the road as police fired back sporadically with rubber bullets and tear gas.

A man's body could be seen lying on the roof of the house until it was taken away by a Red Crescent ambulance under a tight police escort, another correspondent said.

"They came to arrest the guy who shot the rabbi. They fired shots at each other and clashes broke out," said 18-year-old Mahmud Bazlamit who lives in the area.

Others questioned whether the police had come to arrest him.

"This a killing operation. They came and killed him in cold blood," another resident told AFP, refusing to give his name.

American-born radical

Glick was shot after attending a conference in west Jerusalem linked to the question of Jewish prayer rights at the Al-Aqsa compound.

He was hit in the stomach, chest, neck and arm, but his condition improved overnight to serious but stable, the Shaarei Tzedek hospital said.

The gunman fled, but his motorcycle was found parked outside the house in Abu Tor, public radio said.

American-born Glick, who is in his 50s, is a frequent visitor to the Al-Aqsa compound and is well known for his lobbying efforts to secure Jewish prayer rights there.

He belongs to a group of modern-day Jewish zealots whose stated aim is to see a third Jewish Temple built on the plaza -- a move furiously opposed by Palestinians and Muslims.