The body of Bilal al-Shahr, 19, was found in the southern Gaza Strip near the security fence that separates it with Israel late on Saturday.
Israeli gunfire injured another Palestinian, said the official.
An Israeli occupation army spokeswoman earlier said soldiers had fired at two Palestinians.
"Two Palestinians were identified as they were crawling towards the security fence in the southern Gaza Strip. They were cutting part of the fence and apparently they were placing an explosive device on the ground," she said.
"The forces opened fire at the, two hitting them," the Israeli army spokeswoman added.
In a separate development, Israeli armed forces entered the West Bank town of Jenin in 15 jeeps, meeting some resistance, Palestinian security officials said.
Israeli forces killed a Palestinian leader who belonged to President Mahmoud Abbas' Fatah group in a village near Jenin, Palestinian paramedics said on Sunday.
An Israeli military source said troops had identified three armed men there late on Saturday and shot at them.
Around 15 Israeli jeeps entered
the West Bank town of Jenin
During sweeps conducted the day after, they found in a nearby house the top fighter, who was wanted by Israel, dead from a gunshot wound.
Palestinian paramedics identified the man as Shuja Balaawi, a local leader in his twenties from the al-Aqsa Martyrs Brigades, part of Fatah. The military source had no comment on the identification of the man.
An Israeli military source said: "An Israeli army unit spotted three armed Palestinians and opened fire at them during a patrol in the area south of Jenin."
Balaawi first escaped after being shot in the foot, witnesses told Aljazeera.
However, Israeli forces detained Balaawi and shot him in different parts of his body, killing him immediately, the eyewitnesses added.
Balaawi has been wanted by Israel for two years and has been the target of several assassination attempts, the correspondent added.
The Al-Aqsa Martyrs Brigades has
said it will retaliate
The Israeli military operation started at 10pm on Saturday, when Israeli forces ambushed wanted activists at the southern gate of Jenin city, Ali al-Sumodi, Aljazeera's correspondent in Palestine, reported.
Israeli forces searched dozens of houses in the area, he added.
Al-Aqsa Martyrs Brigades and Balaawi's family have accused the Israeli forces of killing him in cold blood, al-Sumodi reported.
Al-Aqsa Martyrs Brigades has said it will retaliate for the killing, reiterating that the Israeli escalation has broken the period of calm, he added.
A public funeral procession will be on Sunday in Jenin city, the correspondent said.