AFP - Israel reopened the flashpoint Al-Aqsa mosque compound and lifted a days-old lockdown of the occupied West Bank on Wednesday, a day after Jerusalem saw the heaviest Palestinian rioting in years.

Tensions also appeared to be easing between Israel and its key ally the United States after a bitter diplomatic row erupted over new settlement plans announced last week during a visit by US Vice President Joe Biden.

But Israel and the Palestinians again accused each other of hampering the hobbled peace process.

Three thousand police stationed in and around the Old City remained on high alert amid fears of further unrest, but authorities lifted restrictions on access to the mosque compound.

The holiest site for Jews and the third holiest for Muslims, the site had been closed to Muslim men under the age of 50 and all non-Muslims since Friday.

Isolated clashes did occur by early afternoon Wednesday, including in a village near the West Bank city of Nablus, where medics said three Palestinians were wounded when the Israeli army fired rubber-coated bullets at people hurling rocks.

Defence Minister Ehud Barak lifted a days-old lockdown of the West Bank overnight.

On Tuesday, clashes between Palestinians and Israeli security forces across east Jerusalem left dozens of police and protesters wounded. Sixty Palestinians were arrested.

Tensions in Jerusalem soared in recent days over the opening of a rebuilt 17th century synagogue in the Jewish quarter of the Old City, a few hundred metres (yards) from the mosque compound.

Israel's announcement last week of plans to build 1,600 new homes for Jewish settlers in annexed Arab east Jerusalem had already fuelled tension and sparked a row with the United States. Facts on the ground: Israel's Jewish settlements

Washington, frustrated over a lack of progress in its peace brokering, reacted angrily to the announcement but senior US officials now appear eager to patch up relations, characterising the argument as a disagreement between friends.

Israel's announcement was made during a visit by US Vice President Joe Biden just two days after the United States had convinced the Palestinians to take part in "proximity" talks with Israel following a 14-month hiatus in negotiations.

Prime Minister Benjamin Netanyahu held telephone talks overnight with Biden, sources in his office said on Wednesday, while US officials said Secretary of State Hillary Clinton would have a conversation with the Israeli premier "very soon," possibly on Wednesday.

Earlier, Clinton said Washington was engaged in "very active consultation" with the Israelis over steps that would demonstrate the requisite commitment to reviving peace talks but reaffirmed the two allies' "unshakable" bond.

The Israelis appeared keen to portray Washington's tone as at least a temporary suspension of hostilities.

"The state of Israel appreciates and cherishes the warm words from Secretary of State Clinton on the deep ties between the US and Israel, and the US commitment to Israel's security," Netanyahu's office said.

At the same time he insisted that while Israel "has proven its commitment to peace," the Palestinians are "continuing to incite towards hatred and violence."

He cited as proof of Israel's commitment its removal of some of the hundreds of roadblocks in the occupied West Bank and its decision in November to impose a partial, 10-month moratorium on settlement construction in the territory, excluding east Jerusalem.

Palestinian President Mahmud Abbas dismissed claims his side set any preconditions, but insisted that Israel must abide by its "obligations" and particularly that to "freeze settlement activity in all Palestinian territories, including Jerusalem."

"We have given our agreement to indirect negotiations, known as 'proximity talks,' and we have no preconditions," he told journalists after talks with Brazilian President Luiz Inacio Lula da Silva in the West Bank political capital Ramallah.