The Israeli police relaxed its open-fire regulations in December 2015, permitting officers to open fire with live ammunition on those throwing stones or firebombs as an initial option, without having to use non-lethal weapons first. The third terrorist's gun jammed.
At least three other people were injured in the attacks, two of them Palestinian bystanders who were hit by gunfire, Israeli newspaper Haaretz reports.
Large numbers of heavily armed security forces were patrolling throughout the Old City, an AFP reporter said.
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Israel said it had eased restrictions on the entrance of Palestinians from the West Bank for Ramadan. The third was said to be a 30-year-old resident of Hebron.
Police said the three were killed. Two of those wounded were Palestinians from east Jerusalem.
The group warned that "this attack will not be the last".
Israel blames the violence on incitement by Palestinian political and religious leaders.
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Israeli police shot dead two Palestinians - believed to be teenagers - in East Jerusalem, while a policewoman was stabbed to death in a seperate incident in the city.
The Islamist movement Hamas that rules the Gaza Strip condemned the shooting of the Palestinians as a "crime by the occupation".
Since October 2015, more than 285 Palestinians have been killed by Israeli police during - or immediately after - alleged attacks on Israelis or in clashes with Israeli security forces, according to Palestinian figures.
Israeli authorities say most of the Palestinians killed were carrying out knife, gun or car-ramming attacks.
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Harun Khan, the Muslim Council of Britain's secretary general, released a statement on the attack, sending his prayers to victims. One person was killed and 10 were hurt. "He was really shouting and aggressive ... he was just spitting on us", Hashi said.
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