Jerusalem has been tense since the bodies of the young Israeli settlers were found, and the police have beefed up their presence in Palestinian neighborhoods.
An Al Jazeera journalist at the scene reported that at least two Palestinians had been hit with rubber bullets during the pitched battles in Shuafat, a Palestinian neighborhood.
Israeli police told Al Jazeera they received a call early on Wednesday about an alleged kidnapping in Shuafat. They said they had not established a link between the alleged kidnapping and the body, which was found in a Jerusalem forest.
Local media have identified the missing boy as 17-year-old Mohammed Hasan Abu Khdair.
Israeli newspaper Yediot Aharonot reported that the body was "charred, and showed signs of violence".
The body was discovered hours after Israel buried the three settlers, whose bodies were found in a valley outside Hebron earlier this week.
They disappeared on June 12 while hitchhiking home from a religious seminary in the occupied West Bank, setting off a weeks-long manhunt.