RecurrenceTable:
RecurrenceTable[{ x[n + 1] == x[n] + (1/2) (Sqrt[1 - y[n]^2] - x[n]), y[n + 1] == y[n] + (1/2) (Sqrt[1 - x[n]^2]x[n + 1]^2] - y[n]), x[0] == 0, y[0] == 0 }, {x, y}, {n, 1, 105}] // N
{{0.5, 0.5}, {0.683013, 0.683013}, {0.70671, 0.70671}, {0.707107, 0.707107}, {0.707107, 0.707107433013}, {0.707107700694, 0.707107573237}, {0.707107, 0.707107}760042, {0.707107, 0.707107611556}, {0.707107775621, 0.707107621377}, {0.707107779567, 0.707107623848}}
Credit goes to Stelios for spotting a mistake in the original answer :)