The flashpoint followed a suspicious blaze at a nearby burger shop, which the owner claims was a hate crime sparked by his involvement in a pro-Palestine rally.
Police used pepper spray as the fight broke out in the middle of Hawthorn Road in Caulfield South on Friday night.
Pro-Palestine supporters rallied in Princes Park and were greeted on the other side of the road by pro-Israel demonstrators, with officers wedged between the groups.
"There were two groups with approximately 200 people in each group demonstrating," police said.
One man was pepper-sprayed and removed from the area and another reported receiving minor injuries after being hit by a rock.
Police said they would investigate both incidents further and review CCTV.
The drama unfolded near a synagogue and Burgertory's Caulfield store, which was severely damaged by fire on Friday morning.
The burger chain's founder Hash Tayeh told reporters he had received threats and believed the blaze was a hate crime after he was filmed at a pro-Palestine rally leading a "from the river to the sea, Palestine will be free" chant.
A photo of the damage posted to social media showed the restaurant covered in ash with broken windows and debris peeling from the roof.
"I refuse to be a casualty of fear," Mr Tayeh posted to Instagram.
On Saturday, a video emerged on social media appearing to show two people setting the shop alight and fleeing in a car parked nearby.
Premier Jacinta Allan said anti-Semitism in every form and attacks on the Islamic community were unacceptable.
"We cannot let violence in the Middle East beget violence on the streets of Melbourne," she told reporters.
Opposition Leader John Pesutto said the scenes in Caulfield were "blatantly anti-Semitic" and all Victorians should be free to worship safely without fear of intimidation.
Jacinta Allan says violence in the Middle East should not beget violence in Melbourne.
Police are treating the shop fire as suspicious although Inspector Scott Dwyer said he was confident it was not religiously or politically motivated.
"I would warn people not to make assumptions or draw lines of inquiry that aren't there between this incident and anything else that is occurring," he said on Friday.
Victoria Police confirmed there would be additional patrols in the Caulfield area and officers were working with community groups.
"While individuals have the right to protest lawfully, we strongly encourage those attending to protest peacefully and without impacting the broader community," it said.
A spokesperson for Free Palestine Melbourne said a demonstration was held in support of the burger restaurant at a neutral location and organisers were not aware there was a Synagogue near the park.
"We apologise to the local Jewish community for the protest location that led to the evacuation of the synagogue, for any fear they may have felt and for the cancellation of Shabbat," they said.
The statement went on to claim the group was confronted by counter-protesters and called on community leaders to ensure Burgertory would be welcomed and safe when it reopened.
Friday's incident followed the arrest of several people during a pro-Palestine rally at Flemington Racecourse on Melbourne Cup day.
Pro-Palestine protesters were met by police at the perimeter of Flemington Racecourse.
Foreign Minister Penny Wong said the violence in Caulfield was unacceptable.
"There is no place for violence, no place for anti-Semitism and no place for Islamophobia in Australia," Ms Wong posted to X, formerly Twitter.
Federal Opposition Leader Peter Dutton said the clash was a "deliberate act of incitement designed to end in violence".
"The Jewish community in Australia is rightly scared for their safety at the moment," he posted to X.
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