The 22-year-old was arrested after he tried to stab police officers attempting to detain him, Israeli newspaper Yedioth Aharonoth reported.
A second knife was allegedly found in his possession.
On Wednesday, nine Israelis were injured after being stabbed by a Palestinian man on a Tel Aviv bus.
Tension has mounted in East Jerusalem – and in the rest of the occupied West Bank – ever since the kidnap and murder of three Israeli settlers last summer and the subsequent abduction and murder of a Palestinian teenager.
Both incidents preceded a devastating Israeli military onslaught on the Gaza Strip in July and August that left over 2,160 Palestinians dead – the vast majority of them civilians – and some 11,000 injured.
Tensions in Jerusalem escalated further late last year after Israel briefly closed East Jerusalem's flashpoint Al-Aqsa Mosque compound after an extremist rabbi was shot and injured by a Palestinian man in West Jerusalem.
Since then, several Israelis have been killed and injured in a spate of separate attacks by Palestinians – both in the occupied territories and in the self-proclaimed Jewish state itself.