Prime Minister Benjamin Netanyahu’s security cabinet voted for the move early on Tuesday.
Tensions rose after two Israeli policemen were killed on 14 July at the site known to Jews as the Temple Mount and Muslims as Haram al-Sharif.
The UN’s Middle East envoy had warned the tensions risked spreading “well beyond” the ancient city.
A statement from Mr Netanyahu’s office said the security cabinet accepted “the recommendation of all the security bodies to change the inspection with metal detectors to a security inspection based on advanced technologies and other means”.
Some 100m shekels ($28m) has been allocated to pay for new equipment and extra police officers, the statement said.
The Israeli authorities had said the metal detectors were needed because the gunmen smuggled weapons into the site.
But the decision provoked protests.
Later the same day, three Israeli civilians were stabbed to death and a fourth injured by a Palestinian who entered a home at a Jewish settlement in the occupied West Bank.
A meeting of the UN Security Council was held behind closed doors to discuss the crisis on Monday.
Speaking afterwards, the UN’s Middle East envoy, Nikolay Mladenov, said: “It is extremely important that a solution to the current crisis be found by Friday this week. I think the dangers on the ground will escalate if we go through another cycle of Friday prayer without a resolution to this current crisis.”
He continued: “Nobody should be mistaken that these events are localised events. In fact, they may be taking place over a couple of hundred square metres, but the affect millions if not billions of people around the world.
“They have the potential to have catastrophic costs well beyond the walls of the old city, well beyond Israel and Palestine, well beyond the Middle East itself.”