Prime Minister Benjamin Netanyahu says Israel "firmly rejects" pressure not to build in Jerusalem following days of unrest and increasing international criticism of planned evictions of Palestinians from homes in the city claimed by Jewish settlers.

Tensions over Sheikh Jarrah neighbourhood in East Jerusalem have stoked daily confrontations.

The United States said it was "deeply concerned" and wanted "authorities to approach the residents … with compassion and respect".

East Jerusalem is among territories that Palestinians seek for a future state.

US-sponsored statehood negotiations with Israel stalled in 2014.

Israel deems of all Jerusalem its capital, a status not recognised abroad.

"We firmly reject the pressure not to build in Jerusalem. To my regret, this pressure has been increasing of late," Mr Netanyahu said.

He made the comments during a televised address ahead of national commemorations of the Israeli capture of East Jerusalem in a 1967 war.

"I say also to the best of our friends: Jerusalem is Israel's capital and just as every nation builds in its capital and builds up its capital, we also have the right to build in Jerusalem and to build up Jerusalem.

"That is what we have done and that is what we will continue to do."

East Jerusalem tensions have spilled over into clashes between Israeli police and Palestinians around Al-Aqsa, Islam's third-holiest mosque, at the height of the Ramadan fast month.

On Saturday night, Islam's holy night of Laylat al-Qadr, Palestinian youth threw stones, lit fires and tore down police barricades in the streets leading to the walled Old City gates as officers on horseback and in riot gear used stun grenades and water cannons to repel them.

Mr Netanyahu said Israel allows freedom of worship but "we will not allow any extremist element to disturb the peace in Jerusalem … We will not allow violent unrest."

UN Special Coordinator for the Middle East Peace Process, Tor Wennesland, has urged Israel to stop demolitions and evictions in the neighbourhood, in line with its obligations under international humanitarian law.

Egypt and Jordan, which made peace with Israel decades ago, condemned Israel's actions, as did the Gulf countries of Bahrain and the United Arab Emirates, two of the four Arab countries that signed US-brokered normalisation agreements with Israel last year.

The UAE has also expressed "strong condemnation" of Israel's storming of Al-Aqsa.

Turkish President Recep Tayyip Erdogan on Saturday called Israel a "terror state "after Israeli police clashed with Palestinian protesters in Jerusalem.

Pope Francis has also called for an end to violence in Jerusalem, saying he was following events there with concern and inviting parties to seek solutions in order to respect the multicultural identity of the Holy City.

"Violence breeds violence, stop clashes," the pope said.

Reuters