A common misconception about walled cities is that dense constructions were built right up against the walls. Although the city centers were almost always dense and crowded, it was common for there to be open spaces like gardens and orchards between the city walls and the inhabited center.

I wrote about population density within the walls of Renaissance Florence here and also wrote about wall construction in some Italian cities here.

I know your question is "like" Jerusalem and so you mean to cover this more generally, but in the case of Jerusalem specifically a few things are worth noting:

1. The current walls of the Old City of Jerusalem are relatively recent, they were built by Suleiman the Magnificent in the 16th century. Though the Crusades-era walls would would have been similarly imposing, for much of Jerusalem's history over the past 2000 years the walls were in various states of ruin.
2. Until the 20th century, Jerusalem didn't actually expand very much at all. The population of the city remained in the low 10s of thousands, and sometimes single-digit thousands for the vast majority of its history in the past 2000 years.
3. As a result, it wasn't actually that difficult for the entire population of Jerusalem to live within the old city. The population of the old city today is still about 35,000, so the population expansion has all been outside the walls. The old city is certainly dense, but it's not exactly teeming (this is more obvious at night than during the day when it's flooded with tourists/shop vendors/etc) and certainly hasn't required modern high rises to accomplish.

Walled cities would limit their expansion with, well, walls.

Jerusalem, for instance had its walls and the seven (six functional) gates to lead people in and out of the city. As u/cptbuck specified, the walls were rebuilt in the 16th century, but the new structures wouldn't have compressed the size of the city and reduced its area. Jerusalem still had other parts of the city that we read of in the Bible such as the Garden of Gethsemane and the Mount of Olives that were outside the city walls.

Based on historical description, Golgotha, where Jesus was crucified was an open space but when you visit the Church of the Holy Sepulchre, there is no sign of a hill. This seems to indicate that even 2000ish years ago, there was tons of space within and outside the walls of the city for expansion and to accommodate more people.

At a macro level, the human population globally remained under the 300 million mark until the 13th century, resulting in less pressure for expansion in walled cities to adjust for population growth.