Israel is removing metal detectors from a holy site in Jerusalem and will use less obtrusive surveillance instead.
Prime Minister Benjamin Netanyahu’s security cabinet voted for the move early on Tuesday.
Tensions rose after two Israeli policemen were killed on 14 July at the site known to Jews as the Temple Mount and Muslims as Haram al-Sharif.
The UN’s Middle East envoy had warned the tensions risked spreading “well beyond” the ancient city.
A statement from Mr Netanyahu’s office said the security cabinet accepted “the recommendation of all the security bodies to change the inspection with metal detectors to a security inspection based on advanced technologies and other means”.
Some 100m shekels ($28m) has been allocated to pay for new equipment and extra police officers, the statement said.
The Israeli authorities had said the metal detectors were needed because the gunmen smuggled weapons into the site.
But the decision provoked protests.
Last Friday, three Palestinians were killed in clashes with Israeli security forces as thousands protested in East Jerusalem and the occupied West Bank.
Later the same day, three Israeli civilians were stabbed to death and a fourth injured by a Palestinian who entered a home at a Jewish settlement in the occupied West Bank.
The site in Jerusalem’s Old City is sacred to both Jews and Muslims. Jews revere it as the location of two Biblical Temples and holiest site in Judaism. It is also the al-Aqsa mosque compound, the third holiest site in Islam.
The area, in East Jerusalem, has been under Israeli occupation since the 1967 Middle East war.
Israel says that three Israeli Arabs who carried out the 14 July shooting near the compound were able to smuggle guns inside and that metal detectors are needed to stop similar attacks. Police chased the attackers into the site afterwards and shot them dead.
But Palestinians strongly object to the installation of metal detectors. They see it as a move by Israel to assert more control over the sacred site and as a violation of longstanding access arrangements.
Many Palestinians have been praying in the streets instead of going through the metal detectors.
On Sunday, Israel placed CCTV cameras near an entrance to the holy site.
There has been speculation that they are meant to replace the metal detectors, but Israeli security sources have been quoted as saying that is not the case.
A meeting of the UN Security Council was held behind closed doors to discuss the crisis on Monday.
Speaking afterwards, the UN’s Middle East envoy, Nikolay Mladenov, said: “It is extremely important that a solution to the current crisis be found by Friday this week. I think the dangers on the ground will escalate if we go through another cycle of Friday prayer without a resolution to this current crisis.”
He continued: “Nobody should be mistaken that these events are localised events. In fact, they may be taking place over a couple of hundred square metres, but the affect millions if not billions of people around the world.
“They have the potential to have catastrophic costs well beyond the walls of the old city, well beyond Israel and Palestine, well beyond the Middle East itself.”