Mohammed Shahadeh was shot dead at the door to his home near the Buraij refugee camp early on Sunday after protests by Palestinian security personnel over unpaid salaries turned violent.
Camp residents said Fatah faction members set fire to several cars belonging to rival Hamas members during the clashes.
Shahadeh served in the Preventive Security Service, loyal to Mahmoud Abbas and his Fatah movement, which blamed Hamas for the killing and ordered its forces across the Gaza Strip to go on alert.
The fighting occurred as Abbas brought a security commander out of retirement in an attempt to prevent Hamas from building up its forces in the West Bank.
Ismail Jaber had previously been accused of corruption, but is widely respected by fighters in the Fatah movement and is seen as one of the few people who can unify their forces.
Most of the security forces are loyal to Abbas, but since winning elections earlier this year, Hamas has formed its own security force of 6,000 men and deployed it throughout the Gaza Strip.
Jaber's appointment came one day after Mahmoud Zahar, the Palestinian foreign minister and a senior Hamas leader, said the group was planning to increase the size of its force in Fatah's West Bank stronghold. A Hamas official said they planned to recruit about 1,500 members.
Palestinian fighters attended
Other officials from the ruling party said that Iran has promised to help train their security forces.
Abbas has handed command of all the West Bank security forces to Jaber, except for three branches that fall under the control of the Hamas-run interior ministry.
Jaber also has influence over parts of the al-Aqsa Martyrs Brigades, which is linked to Fatah.
Civil war fears
In April 2005, Jaber was forced into retirement by Abbas as he was suspected of putting thousands of fictitious names on his payrolls and pocketing the money.
At least 19 Palestinians have been killed this month in internal violence that has raised fears of civil war in the Gaza Strip and West Bank.
Ismail Haniya, the prime minister in the Hamas-led government, has reaffirmed his commitment to forming a unity government with Abbas after prominent Palestinians urged him to resolve the differences with Fatah.
Abbas has hinted that he might dismiss the Hamas-led administration or call for an emergency government made up of technocrats, academics or professionals which could persuade the US and other countries to lift an economic ban.
Bassam Assalhi, one of the professionals who attended the meeting with Haniya, said: "We stressed the first priority and choice is to form a government of national unity; but if peace efforts [between Fatah and Hamas] falter, then we think a government of national figures should be considered."
Many countries cut off direct aid to the Palestinian government after Hamas beat Fatah in parliamentary elections in January. As a result, about 165,000 government workers have gone without pay.