Police said the 70-year-old victim too was Palestinian, apparently from the occupied West Bank. It was not immediately clear whether he had been targeted because he had been mistaken for an Israeli.
Female Palestinian shot trying to stab Israeli border police
"Two female terrorists armed with scissors stabbed a man next to the (Mahane Yehuda) market," police spokeswoman Luba Samri said.
"An officer who observed the event approached, fired accurately and neutralised the terrorists," she added.
Police said the assailants were from the Jerusalem area and aged 14 and 16.
The victim was taken to the Hadassah Hospital with light injuries after being stabbed in the back and head, a hospital spokeswoman said.
A 27-year-old Israeli security guard was taken to hospital with a wound to the hand after apparently being accidentally shot by security forces.
Mahane Yehuda is Jerusalem's best known market and is a popular tourist attraction.
The stabbings were the latest in a wave of attacks by Palestinians since October 1 that have left 90 Palestinians dead, including one Arab Israeli, as well as 16 Israelis, an American and an Eritrean.
Five dead in Palestinian attacks in Tel Aviv,West Bank-Israel
Around half of the Palestinians killed have been alleged attackers.
The attacks were originally focussed in and around Jerusalem but had shifted to the occupied West Bank, particularly in and around the flashpoint city of Hebron.
Monday's stabbing was the first attack in Jerusalem in nearly two weeks.
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