Protests began soon afterwards, which led to clashes between Israeli police and Palestinian rioters.
Muslim worshippers have been praying outside the compound in protest over the presence of the metal detectors, after religious leaders told them not to enter until the devices were removed.
Further security measures such as banning Palestinian men under the age of 50 from entering the Old City have been implemented and thousands of Israeli forces have been deployed to try to prevent further violent protests from occurring in the area.
Israel had insisted the detectors were necessary to prevent weapons being smuggled in by attackers.
Israel’s concession comes after the UN's Middle East envoy said tensions were close to spreading "well beyond" the area if the issue was not dealt with.
Israel has set aside NIS 100m to pay for the new equipment.
It is expected to be put in place over the next six months, along with the deployment of extra police officers.
