Palestinian security sources said the three men, who belonged to an unidentified armed group, were attacked close to a so-called forbidden zone east of the Gaza town of Khan Younis late on Saturday.
The two injured men managed to escape to Palestinian-controlled territory. The third man was killed on the spot, they said.
The Israeli army refused to let a Palestinian ambulance help the man, said Palestinian security sources.
An Israeli military spokesman said the men had been “digging holes” close to a fence before shots were fired at them.