"An Arab terrorist tried to run over a pedestrian in his car, lightly injuring him, and then got out of the vehicle with a knife and stabbed a volunteer police officer in the hand," said a police statement.
A soldier who was passing by at the time shot the attacker, police said.
"The terrorist, apparently a 21-year-old resident of east Jerusalem, was killed by the gunfire," the statement said.
Emergency services evacuated two of the injured to hospital for treatment. The third did not require medical attention.
Since October 1, almost daily attacks and clashes between Palestinians and Israeli soldiers and violence between Palestinians and Jewish settlers have killed 110 Palestinians (including an Israeli Arab), 17 Israelis, an American and an Eritrean, according to an AFP count.
While the violence has focused mainly on the West Bank, Israeli-occupied Arab east Jerusalem and the Palestinian coastal enclave of the Gaza Strip have also seen deadly clashes.
Palestinians are frustrated by the failure of decades of peace talks and the ongoing occupation of the West Bank and east Jerusalem, and many have also lost faith in their political leadership.
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