Hundreds of masked Palestinians Wednesday hurled stones at Israeli riot police, who responded by firing rubber bullets, tear gas and sound bombs. Clashes continued into the night.
Israel's Prime Minister Benjamin Netanyahu condemned the "despicable" killing of the 16-year-old Palestinian boy, whose death came after three Israeli teenagers were killed in the West Bank.
Netanyahu urged both sides "not to take the law into their own hands."
And the family of one of the slain Israeli teens, still in mourning, said any revenge murder was a "horrendous act."
The clashes in the slain teen's Shuafat neighbourhood have left at least 65 people wounded, three by live bullets, while some 35 people were injured by rubber bullets, including six journalists, according to the Red Crescent.
Palestinians held Israel responsible, demanding Netanyahu's government act to prevent revenge attacks.
"I demand the Israeli government punish the killers if it wants peace between the Palestinian and the Israeli peoples," said Palestinian president Mahmud Abbas.
US secretary of state John Kerry warned that acts of vengeance would worsen an explosive situation.
"At this tense and dangerous moment, all parties must do everything in their power to protect the innocent and act with reasonableness and restraint, not recrimination and retribution," he said.
Eyewitnesses told AFP the Palestinian youth, Mohammed Abu Khder, was seen being forced into a car by three Israelis in occupied east Jerusalem.
Police confirmed a body had been found in a forest in Givat Shaul in west Jerusalem, although they refused to link the two incidents.
But DNA tests proved the body was that of the missing teenager, his father said.
"The body belongs to my son," Hussein Abu Khder told AFP, adding that the cause of death was not immediately clear.
UN chief Ban Ki-moon called for justice over the "despicable act", and the International Committee of the Red Cross appealed for the violence to stop.
"At this critical time, the ICRC calls on all sides to stand unequivocally against the abduction and murder of civilians," said Red Cross president Peter Maurer. "The current spiral of violence, loss and suffering must stop now."
'Pay the price'
Tensions have soared across the region since June 12 when the three Israeli teenaged boys disappeared while hitchhiking in the West Bank. Their bodies were found on Monday, with Israel blaming Hamas and vowing to hit it hard.
Calls for revenge followed, with more than 200 Israelis rampaging through Jerusalem after the teenaged boys were laid to rest Tuesday, dragging people out of cars and chanting "Death to Arabs."
Still, Israel's Public Security Minister Yitzhak Aharonovitch stressed that "the motive for the (Palestinian) murder cannot be determined for now."
"All leads are being pursued," he said.
But Hamas held Israel's government directly responsible for Wednesday's death with the warning: "You will pay the price for your crimes."
Meanwhile, 10 projectiles, including two rockets intercepted by Israeli missile defence systems, were fired at Israel from the Gaza Strip during the evening, bringing the total over the past 24 hours to 18, the Israeli army said.
And one rocket hit a home in Sderot, causing damage to the neigbouring road and a power outage in the city in southern Israel, an army statement said.
During the night Israel launched some dozen air strikes on northern Gaza and Gaza City, wounding nine Palestinians, one seriously, according to Palestinian medical and security sources.
Netanyahu convened his security cabinet Wednesday night to discuss punitive measures, but commentators said the murder of the Palestinian boy would seriously limit the margin for manouevre.
'Murder is murder'
As the clashes raged in the Shuafat neighbourhood, where the streets were littered with burning dumpsters and makeshift barricades, the only place of relative calm was the murdered boy's family home.
His mother Suha Abu Khder sat in stunned silence, sometimes breaking down in tears in a room filled with loved ones.
A cousin of the teenager, Ansam Abu Khder, said witnesses had written down the car's licence plate number and police were examining CCTV footage.
"We knew about Mohammed's kidnapping by three Israelis just before the dawn prayers. A witness saw them," he told AFP.
The family of 16-year-old Naftali Frenkel, one of the three murdered Israeli teenagers, condemned the Palestinian teen's death as a "horrendous act".
"There is no difference between Arab blood and Jewish blood. Murder is murder. There is no forgiveness or justification for any murder," they said in a statement.