Israeli media reports said the assailant was shot by a fellow resident of the Adam settlement, which lies between Jerusalem and the West Bank city of Ramallah. There was no immediate comment from Palestinian officials.
Hamas, the Islamist group that rules the Palestinian Gaza Strip, praised the attack. Its spokesman Fawzi Barhoum, said it was a “heroic and brave operation that came in response to the daily, ugly crimes conducted by the Israeli occupation against our people.”
Israeli-Palestinian tensions have surged in the past few months.
At least 140 Palestinians have been killed in the Gaza Strip by Israeli fire in weekly border demonstrations. Israel says Hamas is using the protests as cover for a cross-border attacks. Hamas denies this.
Palestinian militants have in recent weeks fired hundreds of rockets into Israel from Gaza and have opened fire at Israeli troops across the border, killing one soldier and drawing fatal Israeli air and tank strikes.
Peace talks between Israel and the Palestinians collapsed in 2014 and a bid by the U.S. administration to restart them has so far shown little sign of progress.
Palestinians want to establish a state in the Gaza Strip, the West Bank and East Jerusalem, territories Israel captured in the 1967 Middle East war.
Israel pulled out of Gaza in 2005, annexed East Jerusalem in a move not recognized internationally and maintains control over more than half the West Bank, where the Palestinians have limited self-rule. Most countries consider Israeli settlements in the West Bank to be illegal. Israel disputes this.