Palestinian medical officials identified the dead man as Mahmoud Abdalla. Witnesses said the 20-year-old was watching from the roof of his home when he was shot.
Israeli military spokesman Lieutenant-Colonel Peter Lerner said on Twitter: “In the exchange, one terrorist was killed and another wounded and detained.”
Tensions between Israelis and Palestinians have been high in recent months and last week a Palestinian minister died after a confrontation with Israeli border police in the West Bank.
Despite this, however, violence in the West Bank has been at a relatively low level. Israeli security officials attribute this to attempts by Palestinian President Mahmoud Abbas to keep the lid on violence as he pushes for a UN resolution to end Israeli occupation of Palestinian land by November 2016.
Also on Tuesday, Israeli police arrested 10 members of a Jewish extremist group in the early hours of the morning, following an intensive undercover investigation into its activities.
Police spokeswoman Luba Samri said the arrest operation was directed at members of the Lehava group, which has been linked to an attack last month on a Jewish-Arab school.
“Ten suspects have been arrested for questioning following incitement and calls for racist acts of violence and terror,” a police statement said.
The suspects were arrested at their homes in the Israeli towns of Petah Tikva and Netivot, as well as in Jerusalem and Jewish settlements in the occupied West Bank.
Police also seized computers belonging to the suspects.
Among those detained was Lehava leader Bentzi Gopstein, who lives in the West Bank city of Hebron.
Mr Gopstein’s lawyer said the arrests were political.
“The police are acting against Lehava even though it’s a legal organisation fighting against assimilation,” Itamar Ben Gvir said, accusing the “left” of pressuring the police into making arrests.
Left-wing politicians have demanded that Lehava be banned as a “terrorist organisation”.
Three Lehava members were arrested last week on suspicion of torching a classroom at the bilingual Hand-in-Hand school, a rare symbol of coexistence in Jerusalem.
The November 29 attack saw the classroom badly damaged and slogans including “Death to Arabs” and “There’s no coexistence with cancer” scrawled on the walls in Hebrew.
Prime Minister Benjamin Netanyahu and other senior officials condemned the attack.
Lehava, which opposes Jewish assimilation and Arab-Israeli coexistence, follow the teachings of the late Meir Kahana, a virulently anti-Arab rabbi whose Kach party was banned in Israel.
Kahana was murdered in New York in 1990, but his ideology still inspires loyalty among Jewish extremists today.
In 1994, Kahana follower Baruch Goldstein massacred 29 Muslim worshippers at a Hebron mosque.
* Associated Press and Reuters
