The mufti was taken into custody from the Bab Al-Asbat area (Lion's Gate) after Friday prayer.
The mosque was closed and Friday prayers cancelled for the first time since Israel occupied east Jerusalem in 1967 after a gunfight inside the compound on Friday morning killed two Israeli police officers and the three alleged Palestinian attackers.
Jews revere the site, where the two Jewish temples stood in biblical times, as the Temple Mount.
The site is known to Jews as Temple Mount and to Muslims as Noble Sanctuary. Israel won't suffer any harm at the holy sites and it maintains the status quo.
Three gates to the compound still remain closed, Palestinian monitoring groups and activists said.
The top Muslim cleric in the Holy Land, Mohammed Hussein, is based at the Muslim-administered shrine.
Palestinian president Mahmud Abbas conveyed a similar message to Netanyahu when the two spoke by phone on Friday as tensions rose in the wake of the attack.
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"The people of the United States are heartbroken that terrorists brutally gunned down two Israeli police officers, and we extend our prayers and sympathies to the families of the victims".
Israeli authorities are "inflating this situation", he said. Under heavy police presence, Israel partly reopened a Jerusalem holy site on Sunday after taking an unusual step of closing it down following a deadly shooting attack, according to the police.
The site has been a flashpoint for violence in the past, with friction there sparking major rounds of Israeli-Palestinian violence.
This led Israeli security forces to close Jerusalem's holiest site for Jews and Muslims, sparking outrage as Muslims meant to worship there on their holy day, Friday. A statement from Israeli Prime Minister, Benjamin Netanyahu, promised that existing agreements regarding the governorship of the site "will be preserved".
She said three firearms were found on their bodies. They were pursued back to the shrine and shot dead, the BBC reported.
There has been a wave of stabbings, shootings and car-rammings of Israelis predominantly by Palestinians or Israeli Arabs since late 2015.
It was one of the most serious incidents in Jerusalem in recent years.