Police say two Jordanians are dead and an Israeli is seriously injured after the shooting within the embassy complex.
It follows days of anti-Israel protests in the Jordan capital, Amman, over new security measures around Al-Aqsa mosque.
The deadly shooting incident occurred at the Israeli embassy in the Jordanian capital, Amman.
Ahmad Dabbas witnessed the event and describes what he saw and heard.
"I was at the gym, the windows overlook the embassy, and I heard shooting, I opened the window, and I saw people shooting at each other, then the police asked us to close the windows, we closed the windows and we went down, and the shooting was still going on, and we saw the truck and we saw everything."
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Another witness, Adel, says it was a tense situation that unfolded infront of him.
"I saw the pick-up truck, and I saw one man on the ground, and policemen around him, and I saw the yellow ribbon around him, and the security. It was a tense situation. Many security forces came to the area."
Many of Jordan's 7 million citizens are of Palestinian origin, having fled to Jordan in the fighting that accompanied the creation of Israel in 1948.
The incident follows days of protests against Israel about security measures at the site known to Muslims as the Noble Sanctuary and Jews as the Temple Mount.
Metal detectors and additional security cameras have been installed at the entrance to the site after three men, described by Israeli police as "Israeli Arabs", shot and killed two Israeli police officers near the compound over a week ago .
Several thousand Jordanians demonstrated on Friday, with at least three Palestinian protesters being killed in clashes with police and 400 wounded.
In the West Bank, clashes continued on Sunday, with protesters throwing glass bottles and police using tear gas.
In Jerusalem, worshippers prayed outside the Old City near the Al-Aqsa mosque, also protesting against the security measures.
Israel's Public Security Minister, Gilad Erdan, said the metal detectors should stay at the compound, unless an alternative security plan is devised.
