Chanting "with our blood and our spirit we shall sacrifice for the martyr," mourners carried the shrouded body of Mohammed Abu Khder, 16, through his neighbourhood of Shuafat as flag-waving crowds thronged the narrow streets, before he was buried in a local cemetery.
Before and after the funeral, Palestinians clashed with Israeli police near the procession and elsewhere in east Jerusalem, and thousands of officers were deployed in case of widespread unrest.
It was the third straight day of violence since Abu Khder was kidnapped and found dead Wednesday in a suspected revenge attack for the abduction and murder of three Israeli teenagers last month.
The teenager's funeral coincided with the first Friday prayers of the Muslim holy month of Ramadan.
Also Read
Despite the occasion, just 8,000 worshippers joined the weekly prayers at Jerusalem's Al-Aqsa mosque compound, Israeli police spokeswoman Luba Samri told AFP.
Many apparently stayed away fearing clashes with police. On the same day last year police reported a crowd of 80,000.
Police allowed access only to women, and men over 50.
Military commanders, meanwhile, waited to see if a series of statements by Israeli leaders promising to "meet quiet with quiet" would bring a halt to the latest flare-up of violence on the Gaza border.
"There are continuing Egyptian efforts to return calm to the Gaza Strip, but no agreement has been reached yet," a Hamas official told AFP, on condition of anonymity.
Senior Hamas official Bassem Naim told AFP: "Hamas is not interested in an escalation or war in Gaza, but at the same time it is not possible for it to remain silent on the continued aggression against Gaza and the West Bank."
The army reported that eight rockets and two mortar rounds were fired at Israel since this morning.