Israeli troops and Palestinian militia members exchanged fire after Israeli armoured vehicles entered the centre of the city.
At least 50 other Palestinians were wounded by live gunfire and others by rubber bullets, the director of Ramallah's hospital said.
Mohammed al-Shubaki, a leading member of the Islamic Jihad group, was arrested during the Israeli operation.
The Israeli killings in the West Bank came on the eve of Palestinian cross-party talks in Ramallah designed to contain factional violence.
And Mahmud al-Zahar. the Palestinian foreign minister, accused Israel of seeking to scuttle Thursday's talks by escalating the violence in the Palestinian territories.
"We condemn this crime and demand that the international community exert pressure to make Israel stop its attacks," he said.
Also on Wednesday, the head of the main Fatah-linked security force was killed by a roadside bomb in Gaza.
Nabil Hodhod, commander of the Preventive Security force, was killed and his deputy wounded in the explosion near Shifa hospital in central Gaza City.
There was no claim of responsibility for the attack.
A spokesman for Mahmoud Abbas, the Palestinian president, said the Ramallah raid showed poor faith by Israel, coming a day after its prime minister, Ehud Olmert, said in Washington that he wanted to begin negotiations.
"The Israeli government and army are doing their best to increase tensions and destroy the truce," the spokesman said.
As the Israelis began pulling out of the square, they were pelted with rocks, and a crowd of people flooded into the streets, chasing the departing jeeps.
Boys on rooftops threw stones at the army vehicles below.
"This is our city. We have to defend it in every way, no matter how primitive."
A wounded Palestinian is carried
away during clashes in Ramallah
The Israeli army said one soldier was hurt.
One of the dead was identified as a 23-year-old civilian, Milad Abu al-Arayes.
The latest deaths bring the overall toll since the start of the Palestinian uprising in September 2000 to 5,062.