Ramallah: Europe`s top diplomat on Saturday called for a Palestinian state sharing Jerusalem as its capital with Israel, hours after the police killing of an Arab-Israeli further fanned tensions.
The appeal by the European Union`s Federica Mogherini followed the dawn killing of the man by police in northern Israel, with his family saying he was killed "in cold blood" and a video showing he was shot in the back.
"I think Jerusalem can be and should be the capital of two states," the new EU foreign policy chief told reporters in the Israeli-occupied West Bank city of Ramallah.
The status of Jerusalem is a sensitive issue that has blocked peace efforts for decades.
Palestinians are seeking to achieve statehood in Gaza and the West Bank with annexed east Jerusalem as their capital. Israel claims Jerusalem as its undivided and eternal capital city.
In recent weeks tensions have soared, with Israel pushing plans to build new Jewish settlements in east Jerusalem and Jewish extremists demanding the right to pray at the flashpoint Al-Aqsa mosque compound.
Israeli Defence Minister Moshe Yaalon reiterated on Saturday that Jews -- who are allowed only to visit the compound holy to both Jews and Muslims -- would not be authorised to pray there.
Palestinian president Mahmud Abbas urged Mogherini to ensure that this would never happen and that the status quo would remain unchanged, to avoid mass unrest being unleashed.
In the latest violence, Israeli security forces shot dead 22-year-old Arab-Israeli citizen Kheir Hamdan who threatened them with a knife as he tried to prevent a relative being arrested, police said.
Police said he was killed after they fired warning shots, but his family say he was "shot dead in cold blood" in the north Israel village of Kfar Kana.
An Internet video link police provided shows Hamdan running after trying to attack security forces. As he flees a police officer is seen shooting him in the back.
The death of Hamdan, who was buried in the evening, triggered a protest rally by hundreds in his village, while on the outskirts dozens of youths blocked roads with burning tyres and pelted police with stones. Three were arrested.The shooting came after overnight clashes in east Jerusalem between Palestinian youths hurling stones and firecrackers and police who retaliated with rubber bullets, stun grenades and tear gas.
Fresh clashes erupted again as night fell.
Since starting her first official visit to Israel and the Palestinian territories on Friday, Mogherini has been pushing for ways of reviving the peace process frozen since April.
On Saturday she also visited the Gaza Strip, the coastal enclave devastated by a 50-day summer war with Israel, and held talks in Ramallah with Palestinian prime minister Rami Hamdallah.
The world "cannot afford" another war in Gaza, she said, appealing for the creation of a Palestinian state.
"We need a Palestinian state -- that is the ultimate goal and this is the position of all the European Union," she said in Gaza.
Abbas, meanwhile, said that a draft resolution was on course to be submitted to the UN Security Council this month calling for an end date for Israeli occupation.
With peace talks frozen, the Palestinians have been pushing for international recognition for an independent state.
On Friday, Mogherini met Israeli Prime Minister Benjamin Netanyahu, who dismissed her criticism of Israeli settlement building in annexed east Jerusalem and the West Bank.
"I reject the fictitious claim that the root of the continuous conflict is this or that settlement," he said. "Jerusalem is our capital and as such is not a settlement."
Netanyahu has ordered the security forces to either seal or demolish the homes of any Palestinian involved in anti-Israeli attacks, an official said on Friday.
On Saturday he threatened to "strip anyone who calls for the destruction of the State of Israel of their citizenship" as Arab Israelis protested in Kfar Kana.