"The Palestinian, who was the main suspect in last night's attack, was eliminated at his home in Jerusalem's Abu Tor neighbourhood by special police forces following an exchange of fire," police spokesman Micky Rosenfeld told AFP.
Abu Tor straddles the seamline between west Jerusalem and the occupied eastern sector, which was seized by Israel during the 1967 Six Day War.
The suspect's death took place early today, just hours after a gunman on a motorcycle had opened fire at a rightwing Jewish activist called Yehuda Glick, leaving him critically wounded.
Glick, who is known for his lobbying to secure Jewish prayer rights at the Al Aqsa mosque compound, had just attended a debate on the issue at the Menachem Begin Heritage Centre.
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Sacred to both Jews and Muslims, the flashpoint Al Aqsa mosque compound houses Islam's third holiest site, but is also revered as the most sacred spot for Jews who refer to the site as the Temple Mount due to the fact it once housed the two Jewish temples.
Although non-Muslims are allowed to visit the site, Jews are not allowed to pray there. Rumours that Israel was poised to legislate changes to the status quo have triggering weeks of unrest and clashes in and around the plaza.