Sayad Abu Safra, 35, was trying to prevent a mentally deranged individual from approaching the northern Jewish settlement of Dugit on Friday when the soldiers opened fire, the sources said.
His death raised to 3626 the number of people killed since the September 2000 outbreak of the Palestinian intifada, including 2706 Palestinians and 854 Israelis, according to a count by news agency AFP.
Despite the latest violence, Israel and the Palestinians were stepping up contacts on Friday after Prime Minister Ariel Sharon admitted some withdrawals from occupied land were inevitable but also warned of unilateral measures.
Palestinian Prime Minister Ahmad Quraya's bureau chief Hassan Abu Libda is due to meet with Sharon's own top adviser Dov Weisglass next week, to pave the way for a first meeting between the two premiers.
The publicity surrounding an unofficial peace plan due to be signed in Geneva on Monday has forced Sharon to show he is undertaking his own efforts for a resumption of talks.
His son Omri, an MP and influential behind-the-scenes negotiator, met Thursday in London with Palestinian security chief Jibril Rajoub.
Rajoub is a close associate of Palestinian leader Yasir Arafat, whom Israel refuses to deal with and has kept under virtual house arrest in the West Bank town of Ram Allah for the past two years.
"It is clear that we will not always be in all the places that we are now. That is the real political horizon for them and for us to reach a stable peace agreement, which starts with a ceasefire"
Israeli prime minister
Rajoub reportedly demanded that the Israeli government halt its construction of the apartheid wall in the West Bank, but the prime minister vowed on Thursday it would be accelerated.
Despite rare financial sanctions by Washington over the wall and Israel's settlement activity in the Palestinian territories, a defiant Sharon argued on Thursday that the fence was vital to Israel's security.
The Palestinians charge that Israel is using the wall, which cuts deep into Palestinian territory, to seize the West Bank's fertile areas and pre-empt the borders of a two-state solution.
"I believe that the Israeli prime minister is continuing his policy which aims to impose a reality on the ground through continuing settlements and the building of the wall," chief Palestinian negotiator Saeb Erakat said.
However, in his speech on Thursday Sharon admitted that Israel could not maintain its presence everywhere in the occupied territories in the context of a peace deal with the Palestinians.
"It is clear that we will not always be in all the places that we are now. That is the real political horizon for them and for us to reach a stable peace agreement, which starts with a ceasefire," the premier said.