Al-Aqsa Martyrs Brigades' member, Shaadi Misem, was shot and killed when a gunbattle broke out between invading Israeli troops and Palestinians on Sunday.
Seven people were injured during the raid, Palestinian medical sources said. Five of the injured suffered gunshot wounds and two had been beaten up.
After the six-hour invasion, an Israeli military spokesman told AFP troops had entered Jericho to arrest "wanted militants" linked to Palestinian president Yasir Arafat's Fatah movement who were "preparing an attack in the near future".
The source said troops surrounded a house in which "the terrorist was hiding". Troops claim a man came out of the house carrying a machine gun and shot and wounded him.
Israeli troops then began detonating explosives around the house to force a second Palestinian out. His body was later found in the rubble and transferred to Jericho hospital. It was however noted, the source said, that the Palestinian had died of gunshot wounds.
Another man inside the house reportedly opened fire on the troops, and they returned fire, wounding him in the leg. He was taken away by Palestinian medics.
The military said it had arrested four other Palestinians during the invasion.
Israeli bulldozers also demolished three homes in the area. The town has been cordoned off, preventing Palestinians from entering or leaving.
At least three homes were
destroyed by bulldozers in area
Meanwhile, Saib Uraiqat, Palestinian chief negotiator who lives in the ancient town, told an Israeli newspaper about 20 military jeeps and armoured vehicles took part in the raid.
"We condemn this invasion on the first day of the Eid," he said, referring to the Muslim festival of Eid al-Adha (Festival of Sacrifice). "People are confined to their homes instead of celebrating the Eid," he was quoted as saying.