Police swinging batons beat back the demonstrators as they tried to move out of the grounds of the Faiha Mosque in Amman after noon prayers. No one was arrested and no serious injuries were reported.
The protesters had planned to march to U.N. offices to plead for international support for Palestinian refugees and the return of east Jerusalem, which Israel captured in 1967.
The two issues were at the center of the Palestinian-Israeli talks that ended without agreement last week at Camp David.
"America and Israel are plotting against Arabs and Muslims in the so-called Camp David negotiations to strip us of our rights in Jerusalem and Palestine," shouted Abdul-Majid Thneibat, the spiritual guide of Jordan's Muslim Brotherhood Movement.
"America, gather your army because religious men will crush you under their feet," chanted the crowd.
After the Camp David talks collapsed last month, President Clinton suggested that a declaration of statehood by the Palestinians would prompt him to move the embassy from Tel Aviv to Jerusalem.
"I have always wanted to move our embassy to West Jerusalem. We have a designated site there," Mr. Clinton said in an interview, adding that he had not taken action previously because he did not want to undermine Washington's ability to broker Middle East peace.
And while the U.S. says no final decision has been made, Israeli Prime Minister Ehud Barak has said he expects it.
"We will move the embassy to Jerusalem wait and see," Barak told Israeli television Tuesday. "By January 20. They will rent an office in Jerusalem, they'll move the embassy there, and they'll begin to build."
The move would lend support to Israeli claims to the city, but would also infuriate many in the Muslim world. Some militant groups have threatened to target U.S. diplomats if the United States moved its embassy.
Roughly two-thirds of Jordan's 4.8 million people are Palestinians who were displaced in the 1948 and 1967 Arab-Israeli wars, or their descendants. An estimated 1.5 million live in refugee camps and demand the right to return to the West Bank, Gaza Strip and what is now Israel.
Mr. Clinton has suggested that the Palestinians were more to blame for the collapse of the Camp David summit, by not moving as Israel had on the sensitive issue of Jerusalem. Both sides softened positions on other core issues, including refugees and borders.
Barak agreed to extend limited sovereignty to the Palestinians in some of the city's Arab neighborhoods. Palestinian leader Yasser Arafat insisted on full sovereignty throughout east Jerusalem, including the ultra-sensitive walled Old City, home to sites holy to Muslims, Christians and Jews.