Jordan's Anadolu news agency said one man was shot dead after stabbing an embassy staffer, citing an unidentified security official. The guard then responded by shooting dead the Jordanian worker, while the apartment owner who was there at the time was wounded and later died from his injuries, according to the foreign ministry and a security source.
"The incident in Jordan has a potential of disrupting the relations between the two countries", said Oded Eran, a former Israeli ambassador to Jordan.
The event quickly turned into a charged, if discreet, showdown over diplomatic immunity, with Jordan demanding to question the Israeli security guard and barring him from leaving the country, according to local news reports.
He said that two Jordanians were trying to do carpenter works inside a building affiliated with the embassy when one of the Israeli embassy employers fired at them upon suspicion, killing one of the two Jordanian men and arresting the other.
In a sign of the importance Israel places on its ties with Jordan, the Israeli government moved quickly to restore calm.
Israel's Foreign Ministry did not refer to Jordanian demands, but said the guard enjoys diplomatic immunity under global conventions.
Jordan, which occupied East Jerusalem from 1949 to 1967, funds the upkeep of the site, which is known to Muslims as Haram al-Sharif and Jews as the Temple Mount, and runs the Waqf, the religious trust which administers the compound.
Israeli newspaper Haaretz reported that USA envoy to the peace process Jason Greenblatt is set to arrive in Israel on Monday "to support efforts to reduce tensions in the region". She says the 21-year-old attacker is a Palestinian working illegally in Israel.
The mosque's installation has triggered the bloodiest clashes with Palestinians in years. The mosque is Islam's third holiest site after Mecca and Medina in Saudi Arabia.
The injured Israeli is "deputy director of security at the Israeli embassy and is still receiving treatment in hospital", the source added.
The Israeli Embassy has refused to release the guard to the Jordanians for questioning, saying he has immunity.
The drama played out as President Donald Trump's Mideast envoy, Jason Greenblatt, headed to the Holy Land on Monday.
Sabri said newly installed security cameras, described in media reports as a possible alternative to the metal detectors, were discussed.
Another tweeted to criticize media coverage for disproportionately representing "Palestinian" violence against Israelis.