An Israeli military source said soldiers shot the man, identified as a member of al-Aqsa Martyrs Brigades, when he opened fire on them while they were trying to arrest him in the Balata camp on Thursday.
Ala Sanakra, a resistance leader in the camp, said Israeli forces fired first, sparking a gun battle with al-Aqsa fighters.
It was Israel's first killing of a resistance fighter in more than month. Israeli troops killed three Palestinian youths in disputed circumstances in Gaza and fighters retaliated by firing mortars at Jewish settlements.
A Palestinian bomber killed five Israelis in Tel Aviv on 25 February. The sporadic violence has marred a de facto truce that followed a summit in early February between Israeli Prime Minister Ariel Sharon and Palestinian President Mahmud Abbas.