BBC Correspondent Jeremy Bowen reports from Jeruslaem on the riot

The settlers, who belong to a far-right group known as Ateret Cohanim, said their decision followed an agreement with the Israeli authorities, adding that they would return.

There are no details of the reported agreement.

On Tuesday, the Mayor of Jerusalem, Ehud Olmert, gave the settlers 24 hours to evacuate the site on the grounds that they did not have building permits.

An Israeli court also ordered the settlers to stop building.

Police push Palestinian Legislative Councillor Azmi Shuaibi

Earlier, senior members of the Palestinian Legislative Council were beaten by Israeli police in East Jerusalem resulting in at least one man being taken to hospital.

They were attempting to stop the Jewish settlers from constructing the homes.

The settlers, from an ultra-nationalist group, aimed to settle the old city with Jews and began the latest round of construction in response to the nearby murder of a Jewish student earlier in the month.

They laid foundation stones and erected tin sheds, but Palestinian and Israeli peace activists gathered to protest against the building on Tuesday morning and a group of Palestinian MPs, including leading cabinet ministers, later tried to get into the site to join them.

They were led by Palestinian Council member Abu Ala, who was one of the founding fathers of the peace process.

Hanan Ashrawi, a Palestinian minister, said the Israeli paramilitary police who stopped them knew who they were.

Abdel Saleh, the Palestinian Minister of Agriculture, was knocked down in the fray.

Eventually the police allowed the group through.

When Palestinians tried to occupy one of the settlers' sheds, a riot started.