More than two months after the attack, NSW Police Commissioner Mal Lanyon on Tuesday said he no longer needed the powers that restricted public assembly in some areas of Sydney.
The decision comes a week after police violently broke up protests against the Australian visit of Israeli President Isaac Herzog, which included demonstrators being punched and pepper-sprayed by authorities.
The state's police watchdog is investigating after receiving a significant number of complaints alleging misconduct.
The visit of the Israeli president had driven the protest restrictions, Mr Lanyon said, as he urged the community to be calm.
"We had the visit of a head of state; I had significant concerns about the safety of the community in managing the visit of a head of state (and) the movement of Jewish Australians who were there," he said.
"I'm satisfied the conditions that led to the extension last time do not exist now, and I'm more than happy for (police) to work with protesters."
Organisers of the February 9 rally are pressing on with a constitutional challenge in the NSW Court of Appeal to stop the laws from being used after a future terrorist attack.
"The police commissioner was explicit that these undemocratic powers were all about 'protecting' Herzog from 'significant animosity' and mass protest," the Palestine Action Group said.
"Protesters who had nowhere to go were pepper-sprayed, assaulted, injured and arrested by an out-of-control police force who thought they could act with impunity."
The laws were rushed through NSW parliament after the deadly December 14 Bondi shooting and gave the commissioner the ability to limit protests after a declared terrorist incident.
Mr Lanyon deployed his powers almost immediately, restricting protests across Sydney for two weeks from Christmas Eve.
The restrictions were later relaxed to cover areas that included most of the city centre and large parts of the eastern suburbs, including Bondi.
Despite the fiery demonstration at Sydney's Town Hall, where both police and protesters were hospitalised, Mr Lanyon argued the first use of the laws had been a success.
Protesters at Town Hall were not permitted to march to parliament as they had intended under the laws.
The event was also policed under a major events declaration that gave authorities powers to clear the area at their determination.
No officers have been stood down due to alleged police brutality, Mr Lanyon said.
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