An Israeli Jew was stabbed and moderately wounded on Thursday in what police described as a "terror attack" in the east Jerusalem flashpoint Sheikh Jarrah neighbourhood, police said.
"A young ultra-Orthodox Jewish man was stabbed in the upper part of his body. He is moderately wounded," police spokesman Micky Rosenfeld told AFP.
"Two Arabs were arrested by police nearby the site of the attack on suspicion of carrying out the stabbing, which we believe was a terror attack."
Israel's supreme court recently threw out an appeal by a Palestinian family seeking to block construction of Jewish settler homes in Sheikh Jarrah.
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Although east Jerusalem is largely Palestinian, an increasing number of hardline Israeli settlers have moved into the area's neighbourhoods, sparking fights with Arab residents.
An estimated 2,000 Jewish settlers live in Palestinian neighbourhoods of the Holy City, although the exact number of properties they own is unclear.
The Palestinians regard east Jerusalem as the capital of their promised state and fiercely oppose any attempts to extend Israeli control over it.
The Jewish state considers the whole of Jerusalem its "eternal and indivisible" capital.