Bilal Abu Zaid, 27, was killed on Tuesday night by a rocket fired from an attack helicopter covering a raid by some 20 armoured vehicles in Qabatiya, in the northern West Bank, Palestinian security sources said.
Another seven Palestinians, including a five-year-old boy and his mother, were wounded during the raid.
Zaid's death raises the overall toll since the start of al-Aqsa intifada in September 2000 to 4,096, including 3,105 Palestinians and 918 Israelis.
The army said troops were searching for wanted resistance fighters when they responded to an attack by Palestinians.
School under fire
The Israeli forces imposed a curfew on the area and surrounded a building, apparently with the aim of arresting the West Bank leader of the al-Aqsa Martyrs Brigades, Yassir Nazal.
Palestinian youths face detention
at the slightest suspicion
They later said they had captured three Palestinians, including Jafar Abu Hanana, 35, a Brigades leader in Jenin.
Also on Tuesday, Aljazeera's correspondent reported that two Palestinian children were wounded in Rafah when Israeli occupation forces opened fire at an elementary school run by the UN Relief and Works Agency (UNRWA).
In a separate incident, Israeli troops wounded an armed Palestinian trying to enter a Jewish colony in the Gush Katif area in the southern Gaza Strip, military officials said in Jerusalem.
Another armed Palestinian managed to flee, they said.
Palestinian security officials, meanwhile, handed over a belt of explosives to the Israeli army. Found near Bethlehem in the southern West Bank, they claimed it was meant for use by a human bomber.