Salim Kusa was shot in the heart and died immediately on Wednesday after struggling with soldiers in the city centre, according to Aljazeera's correspondent.
Seven other Palestinians were also injured when they too objected to troops commandeering a number of civilian homes that overlook the Old City.
Meanwhile, another 15 Palestinians were injured, three seriously, when an Israeli helicopter launched a missile into the al-Qarara quarter of Khan Yunis refugee camp in the southern Gaza Strip.
Attack on refugees
The missile attack was launched when Palestinian civilians stood at the entrance to the camp and refused to move for the army convoy.
More than 20 Israeli military vehicles then entered Khan Yunis, in what an army spokesman called an operation to eliminate "terrorism infrastructure".
After a seven hour incursion, occupation forces moved on to Palestinian residential areas backed up by helicopters and bulldozers, Aljazeera's correspondent in Gaza reported.
"Israeli military vehicles are now raiding al-Sad al-Aali and al-Barabkha areas west of the camp, demolishing fences of nearby houses and levelling other houses that were partially demolished before," correspondent Samir Abu Shammala said.
The Israeli vehicles have also destroyed wide areas of farmlands facing the settlements in the area.