Hundreds of mourners gathered for the funeral of 16-year-old Mohammed Abu Khudair after prayers marking the Muslim fasting month of Ramadan.
His body was carried for burial through east Jerusalem wrapped in a Palestinian flag. Elsewhere in the city Palestinians threw rocks at police who fired back tear gas and stun grenades.
Three Israeli teenagers were abducted on June 12, triggering army sweeps of the occupied West Bank. Hostility boiled over this week with the discovery of their bodies and with Abu Khudair's slaying in what many Palestinians believe was revenge.
Short-range rocket salvoes from Gaza have drawn Israeli air strikes and a mobilisation of ground forces which Prime Minister Benjamin Netanyahu threatened to use unless the enclave's dominant Hamas Islamists held fire.
Israel said three rockets and two mortar bombs were fired across the border from Gaza yesterdayy. Its Iron Dome interceptor shot down one rocket and the other projectiles struck open ground. Israeli army artillery then shelled southern Gaza. No one was hurt on either side, Israeli authorities said.
Hamas said it was in contact with Egyptian mediators trying to prevent further flare-ups.
Hamas spokesman Sami Abu Zuhri said: "Hamas stressed it was not interested in a confrontation and the occupation (Israel) was responsible for the escalation against our people and they have to stop it."
Ahead of Abu Khudair's funeral, Israeli police deployed extra forces in Jerusalem and barred men under the age of 50 from al Aqsa mosque complex, the city's most sacred Muslim site.
Cairo, echoing Western powers, has also urged restraint by Israel over the killing of the three Jewish seminary students, which Mr Netanyahu blames on Hamas men in the West Bank who are still at large. Hamas has neither confirmed nor denied involvement.
Israelis were incensed at the deaths and scores of ultra-nationalists went on anti-Arab rampages, scuffling with police. Hours after the three teens' televised funerals on Tuesday, witnesses said Abu Khudair was bundled into a car in East Jerusalem.
His charred body was found in a forest on Wednesday.
Abu Khudair's family and other Palestinians, including President Mahmoud Abbas, said he was the victim of a Jewish vendetta and Mr Netanyahu's right-wing government bore responsibility.
Mr Netanyahu called the killing "loathsome" and ordered a swift police investigation to find the culprits. Israeli authorities said they did not yet know whether Abu Khudair was indeed the victim of a hate crime.
Meanwhile, the Israeli military said it had jailed four soldiers for posting anti-Arab messages on social media. A police spokesman said the force's cyber-crime unit was also cracking down on racial incitement online, whether by Jewish or Arab citizens.
While vowing to hit Hamas over the three Israeli teenagers' killings, Mr Netanyahu is reluctant to launch a major operation in Gaza.