Israeli Minister of Internal Security Gedeon Azra responded to Knesset member Abdullah Dahamisha's request by withdrawing Israeli forces, said a statement released by the member's office.
Dahamisha said he made the request to keep a rock-throwing incident from escalating. The clash sparked condemnations and threats by Palestinian groups.
Police accompanied two groups of Jewish worshippers to an area near the mosque at dawn Monday, witnesses said, and intervened when Palestinians threw stones at the second group inside the mosque compound. Two people were injured in the incident.
Palestinian President Mahmoud Abbas described the police action as a "most dangerous violation" of Palestinian sanctities.
Islamic Jihad spokesman Abu Abdallah said "the (al-Quds) Brigades will retaliate in the right time and place to the desecration of al-Aqsa mosque by the Israeli troops."
The mosque is Islam's third holiest shrine after Mecca and Medina in Saudi Arabia. Jews worship at the location because it is the site of ancient temples.