A special anti-terrorist squad of Israel's border police entered Hebron overnight in what they said was a bid to arrest Abdullah Qawasemeh
but ended up killing him when he resisted.
They said he was armed and tried to escape.
Military officials provided few details of the operation but sources were quoted by Israel Radio as saying it was not a targeted assassination.
Palestinians said Israeli troops made no attempts to detain Mr. Qawasemeh and simply gunned him down.
They accused Israel of undermining Palestinian efforts to negotiate a truce with Hamas.
Abdullah Qawasemeh is accused of having direct responsibility for attacks from suicide bombings to roadside ambushes
which have killed more than 40 Israelis including the recent bus bombing in Jerusalem that killed 17.
He is said to have recruited some of the suicide bombers used in the attacks from a soccer club he ran in the Hebron area.