Video shown by Ethiopian television ESAT shows a man standing inside the embassy compound and brandishing what appears to be a handgun.
Several people are heard yelling and seen trying to approach the man when a gunshot rings out.
Local media said no one was injured.
A State Department spokeswoman said a man was arrested and that a protest had been taking place near the embassy.
NBC News reported that the alleged shooter was an embassy employee.
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State Department spokeswoman Jen Psaki said her office "takes very seriously any incident involving the use of a firearm.
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