Palestinians pray at Jerusalem's Al-Aqsa mosque for first Ramadan Friday
The figure from the Waqf organisation is 50 percent higher than last year, when around 120,000 people attended the first Friday prayers.
Azzam al-Khatib, director general of Waqf, said the crowds reached the site "despite checkpoints and a large security presence".
The prayers ended without any major incident, he told AFP.
The site in Israeli-controlled east Jerusalem is the third holiest in Islam and has proved a flashpoint in the Israeli-Palestinian conflict.
The compound which includes Al-Aqsa is known to Jews as the Temple Mount, the holiest site in Judaism.
An AFP photographer at the Qalandia checkpoint between Jerusalem and the West Bank saw thousands of Palestinians - including elderly people in wheelchairs - queueing to enter the city early Friday morning.
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Coordination between Palestinian and Israeli authorities had improved at the checkpoint this year, the photographer said, making access to Jerusalem easier.
Israeli restrictions on Palestinians from the occupied West Bank are eased during the month of Ramadan, which began on Monday.
Men over the age of 40 and children under 12 will be allowed to enter the city on Fridays during Ramadan, while there are no restrictions on women, the Israeli army announced.
"Police units and border police are mobilised in different areas of the Old City to allow thousands of people to enter the area easily and at the same time prevent any incidents throughout the day," Israeli police spokesman Micky Rosenfeld said in a statement.
Israel views the whole of Jerusalem as its capital while the Palestinians see the eastern part as the capital of their future state.
East Jerusalem, where the Al-Aqsa Mosque compound is located, is considered occupied Palestinian territory under international law.