However, a Hamas security source said the three were apparently civilians collecting scrap metal in an industrial zone near the Israeli border.
Palestinian officials accused the Israeli government of attempting to escalate the situation in the Palestinian territories.
"The Israelis have committed a crime that proves they do not want and do not even think about peace with the Palestinians," Nabil Abu Rudaina, a spokesman for the Palestinian presidency, said.
"By committing this, Israel seeks to abort the US and international effort to resume negotiations."
Describing the West Bank raid, Palestinian medics and witnesses said Israeli soldiers surrounded the homes of three members of al-Aqsa Martyrs Brigades, an armed group loosely linked to Fatah, the party of Palestinian President Mahmoud Abbas, and then killed all three.
The raid took place two days after the same group was one of two to claim responsibility for the fatal shooting of an Israeli settler on Thursday on a West Bank road.
'Cycle of violence'
Al Jazeera's Nisreen El-Shamayleh, reporting from the West Bank city of Nablus, said thousands of Palestinians turned out in Nablus to participate in a funeral for the three al-Aqsa Brigade members.
"This comes at a very emotional time for all Palestinians, just one day before they prepare to commemorate the one year anniversary of Israel's war on Gaza where many lives were lost," she said.
"The Palestinian Authority has said in a statement that this is just a move by Israel to push Palestinians into a vicious cycle of violence in order to escape international pressures.
"The Israeli army, for its part, has said that this comes as retaliation against the death of an Israeli settler in the area on Thursday night."
The Israeli was the first to get killed in a Palestinian attack in about eight months in the West Bank, territory Israel captured in a 1967 war and which Palestinians seek for a state.
Sources in Fatah said the three men targeted by the Israelis had been disarmed under security measures taken by Abbas's police force.
At least one had previously been on an Israeli wanted list.