How to Shroud a Martyr in Islam
Question

How is the martyr to be shrouded?
Praise be to Allah.Understanding the Sunnah on Shrouding Martyrs
The Sunnah is for the martyr to be buried in the clothes in which he was killed. (Bada’i` As-Sana’i`, 2/368; Mawahib Al-Jalil, 2/294; Al-Majmu`, 5/229 and Al-Mughni, 3/47)
Hadith References on Martyr Shrouding
A number of Hadiths have been narrated concerning that, such as the following:

Ahmad (33144) narrated that the Messenger of Allah (peace and blessings of Allah be upon him) said on the day of Uhud: “Bury them in their clothes.” (Classed as authentic by Al-Albani in Talkhis Ahkam Al-Jana’iz, p. 36)
It was narrated that Jabir (may Allah be pleased with him) said: “A man was struck with an arrow in his chest, or in his throat, and he died. He was wrapped in his clothes as he was, and we were with the Messenger of Allah (peace and blessings of Allah be upon him). (Narrated by Abu Dawud, 3133; classed as sound by Al-Albani in Sahih Abu Dawud. Al-Hafidh said in At-Talkhis, 2/118; its chain of narration is authentic according to the conditions of Muslim)
It was narrated that Khabbab ibn Al-Aratt (may Allah be pleased with him) said: When Mus`ab ibn `Umayr was killed on the day of Uhud, he left nothing but one sheet. If we covered his head with it, his feet became exposed and if we covered his feet with it his head became exposed. The Prophet (peace and blessings of Allah be upon him) said to us: “Cover his head with it and put Idhkhir (a kind of grass) over his feet.” (Narrated by Al-Bukhari, 4047 and Muslim, 940)

Scholarly Opinions: Recommended vs. Obligatory
The jurists differed concerning the command of the Prophet (peace and blessings of Allah be upon him) to bury martyrs in their clothes – is it recommended and better, or is it obligatory? There are two views:

The first view is that it is recommended. This is the view of the Shafi`is and some of the Hanbalis.

An-Nawawi (may Allah have mercy on him) said in Al-Majmu` (5/229): His heir has the choice: if he wishes he may bury him in what he is wearing, or if he wishes he may remove it and bury him in something else. But not doing that is preferable. (End quote)
Ibn Qudamah (may Allah have mercy on him) said in Al-Mughni (3/471): This is not definite, but it is preferable. The heir may remove his clothes and bury him in something else. (End quote)
They quoted as evidence that it is not obligatory the report narrated by Ahmad (1421) from Az-Zubayr which says that his mother Safiyyah (who was the sister of Hamzah) came with two garments on the day of Uhud and said: “These are two garments that I have brought for my brother Hamzah, for I have heard that he has been killed. Shroud him in them.”
He said: So we brought the two garments to shroud Hamzah  (may Allah be pleased with him) in them, and beside him there was a man of the Ansar who had been killed, and the same thing had been done to him as had been done to Hamzah.
We felt embarrassed to shroud Hamzah in two garments when the Ansari had no shroud, so we said: “One garment for Hamzah and one for the Ansari.” We measured them and one was bigger than the other, so we drew lots between them and we shrouded each of them in the garment that fit him. (Classed as sound by Al-Albani in Ahkam Al-Jana’iz, p. 62)

The second view is that the command is to be understood as meaning that it is obligatory. This is the view of the Malikis and Hanbalis, and was the view favoured by Ibn Al-Qayyim and Ash-Shawkani (may Allah have mercy on them).

Al-Mardawi (may Allah have mercy on him) said in Al-Insaf (6/94): The correct view is that it is obligatory to bury him in the garments in which he was killed. (End quote)
Imam Malik (may Allah have mercy on him) said: If his heir wants to add to what he is wearing and he has something that will do as a shroud, he should not do that, even if that is available to him. Nothing should be added. (End quote from Mawahib Al-Jalil, 2/294)
Ash-Shawkani (may Allah have mercy on him) said in Nayl Al-Awtar (4/50):
It seems that the command to bury the martyr in the clothes in which he was killed is to be understood as meaning that it is obligatory. (End quote)
Special Circumstances for Shrouding Martyrs
With regard to the Hadith about Hamzah, they replied:
He was shrouded in another shroud because they (the non-Muslims) had mutilated him by cutting open his stomach and taking out his liver, and they had taken his clothes. That is why he was shrouded in another garment. This was stated by Ibn Al-Qayyim (may Allah have mercy on him) in Zad Al-Ma`ad, 3/217.
Ibn Rushd (may Allah have mercy on him) said: If a person has been stripped by the enemy, there is no concession allowing him not to be shrouded, rather that is obligatory. The Messenger of Allah (peace and blessings of Allah be upon him) shrouded two martyrs on the day of Uhud in one garment. (End quote from Mawahib Al-Jalil, 2/294)
Islamic Rulings on Removing Weapons and Accessories
Question:
Should whatever he has on him of weapons, furs, shoes, belts, caps, etc. be removed?
With regard to weapons, the scholars unanimously agreed that they should be removed.
Ibn Al-Qasim (may Allah have mercy on him) said in Al-Mudawwanah: his shield, sword and all weapons should be removed from him. (End quote from Mawahib Al-Jalil, 2/294)
An-Nawawi (may Allah have mercy on him) said in Al-Majmu` (5/229): The scholars agreed that metal and leather should be removed from him. (End quote)
It seems that what is meant by “leather” is weapons and tools of war, because just one line above that, he mentioned that there is a difference of opinion with regard to removing furs and shoes. So what is meant by leather here is weapons, such as the scabbard in which the sword is worn, or the quiver in which arrows are kept, and the like.
They quoted the following as evidence for that:

The report narrated by Abu Dawud (3134) from Ibn `Abbas (may Allah be pleased with him) who said: The Messenger of Allah (peace and blessings of Allah be upon him) commanded that the metal and leather be removed from those who had been slain at Uhud, and that they should be buried with their blood and garments.” (This was classed as inauthentic by Al-Hafidh in At-Talkhees, 2/118; it was also classed as inauthentic by Al-Albani in Da`if Abu Dawud)
But there is no need to refer to this inauthentic Hadith, because of the report narrated by Ahmad (23144), according to which the Messenger of Allah (peace and blessings of Allah be upon him) said on the day of Uhud: “Wrap them in their garments.” This was classed as authentic by Al-Albani in Talkhis Ahkam Al-Jana’iz, p. 36. Metal and leather (weapons) are not among one’s garments, so they are not included in this Hadith. (Bada’i` As-Sana’i`, 2/368 and Al-Mughni, 3/471)

With regard to furs, shoes, caps and belts, the scholars differed as to whether they should be removed, and there are two views.

That they should not be removed. This is the view of the Malikis.

Al-Hattab (may Allah have mercy on him) said in Mawahib Al-Jalil (2/294): Ibn Al-Qasim said: … nothing should be removed from one who is wearing anything, neither his clothes, nor furs, nor shoes, nor cap. Mutarrif said: nor his ring, unless it has a precious stone, nor his belt, unless it is valuable. (End quote)
They quoted as evidence the words of the Messenger (peace and blessings of Allah be upon him) concerning the martyrs of Uhud: “Wrap them in their garments.”  This is general in meaning and includes all their garments.

That they may be removed. This is the view of the Hanafis, Shafi`is and Hanbalis.

They quoted as evidence the following:

The Hadith of Ibn `Abbas (may Allah be pleased with him) who said: The Messenger of Allah (peace and blessings of Allah be upon him) commanded that the metal and leather be removed from those who had been slain at Uhud, and that they should be buried with their blood and garments. This is inauthentic, as stated above.
The report narrated from `Ali (may Allah be pleased with him) who said: Furs, shoes and caps may be removed from the martyr. (This was classed as inauthentic by Ash-Shawkani in Nayl Al-Awtar, 4/50)

Al-Kasani (may Allah have mercy on him) said in Bada’i` As-Sana’i` (2/368-369): This is because what is left is left as a shroud, and the shroud is what is worn for covering the body, and these things are worn either for beautification and adornment, or for protection from cold, or for protection from weapons, and the deceased has no need for any of that, so none of these things can be a shroud. Thus it is clear that what is meant by the words of the Prophet (peace and blessings of Allah be upon him), “Shroud them in their garments” is the clothes in which they are shrouded and which are worn to cover the body. (End quote) (Al-Majmu`, 5/229 and Al-Mughni, 3/471)
For more details, please see the following answers: 14012, 8511, 11419, 71284, 151904, 148735.
And Allah knows best.