The man was suspected of conducting two attacks on Saturday, when he opened fire on a car in the Israeli settlement of Ateret and on an army post in the Nabi Saleh settlement.
"During the arrest, he [Palestinian] took a home-made gun and pointed at the Israeli forces. The soldiers of the [Israeli counter-terrorism unit] Yamam saw that he was armed, opened fire and killed him," the border police said.
Tensions between Israel and Palestine have continued to escalate through the years. The Palestinians are seeking to create their own state on the territories of the Gaza Strip and of the West Bank, partially controlled by Israel. However, Israel refuses to recognize its independence.
On Friday, three assailants opened fire at the Temple Mount complex, Jerusalem's holy site, killing two policemen and wounding a third.