The ban will apply to Palestinians in annexed east Jerusalem who do not live inside the Old City. Only Israelis, tourists, residents of the area, business owners and schoolchildren will be allowed entry.
Worship at Al-Aqsa mosque compound will be restricted to men above 50 years of age, with no age restrictions for women. Entry to the mosque will be through one gate.
It comes after a Palestinian stabbed and wounded an Israeli teenager in Jerusalem and was then shot dead by police.
Violence has risen in East Jerusalem and the occupied West Bank in recent weeks. Though not at the levels of previous Palestinian uprisings, or "Intifadas," it has triggered concerns of a wider escalation.
Police spokeswoman Luba Samri said the victim was taken to hospital in moderate condition and that police men "saw the terrorist holding a knife, shot and neutralized him."
The attack happened less than 12 hours after a Palestinian stabbed two Israelis to death nearby in Jerusalem's walled Old City, and wounded at least two others. The assailant, later claimed by Palestinian militant group Islamic Jihad as a member, was shot dead by police.
Prime Minister Benjamin Netanyahu was due to convene an emergency meeting with security officials later on Sunday, his office said, and a security cabinet meeting on Monday.
On Thursday, an Israeli couple was shot dead while their four children were in the car in a suspected Palestinian drive-by attack near a West Bank Jewish settlement.
Israeli police and Palestinians have also clashed frequently at Jerusalem's al-Aqsa mosque compound, Islam's third-holiest site, and at other Arab parts of the city.
Palestinians have said they fear that increasing visits by Jewish groups to the holy compound, revered by Jews as the site of Biblical temples, are eroding Muslim religious control there.
Israel has pledged to maintain Muslim prayer rights at al-Aqsa, but, citing security concerns, has frequently banned young Muslim men from entering the area.
Palestinians want East Jerusalem, the West Bank and Gaza Strip, lands Israel captured in a 1967 Middle East war, for a future state. Peace talks collapsed in 2014.
