His release, ordered by the Kfar Sava court on Tuesday, sheds light on the leniency adopted by the Israeli justice system towards Jews involved in serious crimes against non-Jews.
The court, presided over by a religious Jew, reportedly rejected a police request to extend the remand of Yehosua Elitzur, 33, from the West Bank settlement of Itamar, until the end of the legal proceedings.
On Monday, Elitzur killed a Palestinian driver, claiming the victim tried to run him off the road.
Palestinian witnesses testified that Elitzur killed Salah Jibara, a father of eight children, in cold blood and for no reason other than wanting to kill a Palestinian.
Some rabbis support Jewish
killings of Palestinians
"The settler parked his car on the right side … and stood in the middle of the road. When Salah Jibara arrived and slowed down thinking that the settler needed help, the settler aimed his M-16 at him, killing him on the spot," said Muhammad Shattiya.
"Then the settler began praising God for killing him."
When a Palestinian passerby asked why he shot him, the settler said: "It doesn't matter. He is only a Palestinian," according to the Jerusalem-based Palestinian Human Rights Monitoring Group which has investigated the incident.
Another Palestinian witness, Ahmad Shattiya, said: "The settler simply was waiting for any Palestinian motorist to come so that he could kill him. Even if Jibara had not stopped, the settler would have killed him, claiming that he had tried to run him over.
Settlers are accused of creating
reasons to attack Palestinians
"The man was out to kill an Arab it is as simple as that."
Shattiya and other Palestinians in the area tried in vain to save Jibara's life.
"He lost consciousness and we tried to resuscitate him. We shouted to the settler to call an ambulance, but he said: 'Praise to God, he is dead,' and left."
Ever since the start of the intifada four years ago, Jewish settlers - affiliated to the National-Zionist movement known as Gush Emunim - have murdered dozens of Palestinians, including children.
Earlier in September, several influential Orthodox rabbis and Talmudic sages in Israel issued religious edicts allowing Jews to kill Palestinian civilians and non-combatants even if they posed no threat to Jews.
"The man was out to kill an Arab, it is as simple as that"
The rabbis apparently relied on a Talmudic injunction stipulating that in war time, Jews are enjoined to kill enemy civilians.
The settlers often concoct pretexts for the purpose of justifying their acts.
Normally, Israeli courts give them the benefit of the doubt and reduce the severity of the charges against them from murder to manslaughter in which case the killers spend a few months or a few weeks in jail before they are freed.
Palestinians convicted of killing Jews, even by mistake, are usually convicted of murder and imprisoned for life. Moreover, their family homes are demolished and their belongings are destroyed by Israeli bulldozers.