The military said it entered the Palestinian town on Tuesday morning in an operation to arrest a senior member of the Islamic Jihad group.
Morwah Kamil, 25, head of the Islamic Jihad military wing in Jenin, was killed in a lengthy gun battle that erupted after Israeli troops entered the town of Qabaty, near Jenin, in an arrest raid, witnesses said.
The Israeli army confirmed Kamil was the object of the raid.
The gunfight broke out when the senior leader and other fighters holed up in a house was surrounded by Israeli soldiers.
Israeli occupation forces brought a military bulldozer into Qabaty and started demolishing the house.
An Israeli military helicopter hovered overhead during the operation.
Hamas and other groups have
largely abided by a truce
In response to the clashes, Israeli occupation forces imposed a curfew in Abu al-Rub - a neighbourhood in Qabaty - and surrounded a house where they suspected Mrawwih Kmail, the leader of al-Quds Brigades to be hiding, Aljazeera correspondent Ali al-Sumodi reported.
Nasser Zakarneh, a 23-year-old civilian, was also killed on Tuesday by Israeli soldiers who opened fire in an operation to arrest fighters from Islamic Jihad, witnesses and medics said.
Aljazeera reported Zakarneh died from three bullets to his chest.
Israeli military sources said a soldier was also shot and wounded in the clashes in Qabaty. Five other Palestinians were also injured during the operation.
Israeli forces also arrested five Palestinians before ending the military operation in the area.
Occupation forces also opened fire at ambulances in the area, the correspondent said.
More than 20 Israeli military vehicles were deployed in Qabaty.
The military occupied some citizens' homes while snipers opened fire at citizens, the correspondent added.
In another attack, Palestinian fighters in the Gaza Strip fired at least three makeshift rockets at an Israeli border town on Tuesday, damaging an apartment building but causing no serious casualties, the Israeli army said.
"Any harm that befalls al-Aqsa mosque will mean an open, fierce war in all of our land of Palestine, and by all means"
An army spokeswoman said two Sderot residents were treated for shock after a rocket hit their building.
Hamas' military wing, the Izz al-Din al-Qassam Brigades claimed responsibility for the salvo on Sderot, calling it a response to a confrontation between Israeli police and Palestinians at al-Aqsa mosque in Jerusalem on Monday.
"Any harm that befalls al-Aqsa mosque will mean an open, fierce war in all of our land of Palestine, and by all means," the Hamas military wing said in a statement.
Also on Tuesday, a Palestinian was killed by Israeli fire in Tal Zarab area, south of the Rafah refugee camp in the Gaza Strip, Palestinian medical sources said.
The Israeli soldiers who shot him were positioned on observation towers along the border between Palestinian and Egyptian territories south of Gaza Strip, the sources added.
The Israeli army and Palestinian ambulance vehicles coordinated the transfer his body from the place where he was shot.