Clashes between occupation soldiers and resistance fighters broke out on Tuesday near the Gaza Jewish settlement of Rafah Yam, said military and security sources on both sides.
Shortly afterwards, resistance fighters opened fire on a car near the Jewish settlement of Talmon next to the West Bank city of Ram Allah, said an Israeli military source.
Another Israeli was wounded and was taken to hospital, said Israeli medics.
Al-Aqsa Martyrs Brigades, an armed wing of Palestinian President Yasir Arafat's Fatah movement, claimed responsibilty for the incident.
The group said the attack was in response to Israel's invasion of Palestinian areas, destruction of homes, and illegal detentions.
Palestinians have been waging an Intifada against Israel's occupation since September 2000. Since then, politicians on both sides say their peace process has collapsed.
Gaza Strip's fate
On the diplomatic front, Israeli Prime Minister Ariel Sharon raised the possibility of withdrawing from the Gaza Strip.
Sharon has reiterated warnings
to take unilateral steps
"I hope the day will come when we will not have to sit in the Strip," Sharon said in a radio speech to Palestinian soldiers with Israeli citizenship.
Sharon's comments, directed at the group of Bedouin soldiers, follow his recent statements that Israel will have to yield some land for peace either in a deal with Palestinians or as part of go-it-alone steps to end years of violence.
Israeli forces are particularly exposed in the Gaza Strip. About 8000 Jewish settlers live there under heavy military protection near more than one million Palestinians.
A senior official said that whatever happened there would be no dramatic pullout from the Gaza Strip and there was no certainty that settlements would go.
Under international law, settlements are illegal, a stance not recognised by Israel.
But settlers are furious at recent comments about giving up land from Sharon, a settlement champion who in the past called on them to ''seize the hills''.