The Islamic Jihad group said Mohammed Assi, 28, was one of its members.
The Shin Bet, which is in charge of Israeli internal security, said the Palestinian was killed in an exchange of fire with security forces who had come to arrest him near the village of Bilin in the West Bank.
It said Assi helped to plan a bus bombing in Tel Aviv last November in which 29 people were wounded.
Violence has been on the rise in recent weeks in the West Bank. Five other Palestinians have been shot dead in the territory by Israeli troops and three Israelis have been killed in clashes and shootings since Israeli-Palestinian peace talks resumed in July.