The community had been protesting, following violence on Thursday over Sikh militant leader Jarnail Singh Bhindranwale's posters in which a youth was killed.
The protestors were demanding for arrest and punishment of those responsible for Thursday's firing incident.
Senior leaders of the Sikh community held talks with state home secretary R.K. Goyal, director general of police (DGP) K. Rajendra Kumar, Jammu divisional commissioner Pawan Kotwal and other senior civil and police officials.
Sikh leader Tarlochan Singh Wazir told reporters after the meeting that the four-hour-long talks with the administration were successful since all the demands of the community were met.
Immediately after the talks, the government ordered transfer of senior superintendent of police (SSP) Jammu Uttam Chand, suspension of station house officer (SHO) Satwari Kulbir Singh and payment of ex gratia of Rupees five lakh and a government job to the next kin of the slain Sikh youth Jagjit Singh.
Sikh leaders said the cremation of the youth's body will be held on Saturday at his ancestral Chohala (R.S.Pura) village.
Educational institutions in Jammu, Samba, Kathua, Rajauri and Poonch districts will be shut for the second consecutive day on Saturday.
Police have also registered an FIR of murder under section 302 against a security guard of the SSP Jammu in Satwari police station for firing at the mob that led to the death of youth.
Police here confirmed that elders of the Sikh community had on Friday returned the AK-47 rifle which was snatched from a special police officer (SPO) by the protestors in Digiana area of the city on Thursday.
Meanwhile, Internet connectivity has been restored through landline broadband facilities in Jammu city.
Authorities said the same would be restored on mobile phones as well on Saturday.
The internet connections were snapped in order to prevent spreading of rumours after heightened tensions.
Authorities will also take a call today on lifting restrictions imposed in Jammu city under section 144 of the CrPc.
"We will review the situation in the afternoon", DGP, K. Rajendra Kumar told IANS.
Trouble had erupted in Satwari area of the city on Wednesday when police removed posters of Sikh militant leader Jarnail Singh Bhindranwale.
An assistant sub-inspector of police was attacked with knife by a youth after the incident.