The court on Thursday handed Hayb an 11-1/2-year sentence but said he would only have to serve eight years.
Taysir Hayb was convicted in June of manslaughter in the 2003 shooting of Tom Hurndall, a 22-year-old activist with the pro-Palestinian International Solidarity Movement who died in London in January 2004 after lying in a coma for nine months.
Hayb shot Hurndall as he helped Palestinian children cross a street to avoid gunfire in the Rafah in occupied Gaza.
The southern town of Rafah has been a frequent flashpoint of Israeli-Palestinian violence during a Palestinian uprising that began in 2000.
Rights groups have accused Israel of using excessive force to quell Palestinian protests, and say very few cases in which Palestinian civilians have been shot have led to convictions.
Human Rights Watch accused the army in June of investigating fewer than 5% of hundreds of cases of Palestinian civilians killed since the start of the Palestinian revolt.