Palestinians launched a rare strike in Israeli-annexed east Jerusalem Wednesday over a days-long operation by Israeli security forces in a refugee camp after a soldier was shot dead.

Businesses were shuttered in the Old City and along the main commercial street of the city's eastern sector, which is usually bustling with shoppers and traffic.

The strike follows the killing on Saturday of an Israeli soldier at a checkpoint near the Shuafat Palestinian refugee camp, which prompted a massive manhunt for the suspected attacker, who remains on the run.

Entrances to the refugee camp have been mostly shut, while the raids have affected schools and healthcare.

In Jerusalem's Old City, Nawal Jodeh said her daughter lives in the camp with her family.

"When I talked to her, she said the situation is bad there," the 50-year-old told AFP.

"I heard the sound of shooting and teargas canisters," she added.

Heavily armed security personnel have clashed with stone-throwing Palestinians in the camp.

The United Nations agency for Palestinian refugees said the violence and extra checkpoints had prompted it to close its schools and healthcare centre in the camp.

"The situation is really tense there on the ground," spokesman Kazem Abu Khalaf told AFP, adding that tonnes of uncollected garbage are piling up.

During a visit to the camp on Tuesday, Arab-Israeli lawmaker Ahmad Tibi said the armed forces operation amounted to "collective punishment".

"Sick people are not able to get outside to be treated, bakeries are empty, some physicians and doctors and nurses were not able to get in," he told AFP.

The strike across Palestinian neighbourhoods of east Jerusalem came as thousands of Jewish residents gathered in the city to mark the week-long Sukkot holiday.

Israeli police have deployed reinforcements for the holiday amid a spike in Israeli-Palestinian violence.

A second Israeli soldier was shot dead Tuesday in an attack near Nablus in the northern West Bank.

The Israeli military said Wednesday it had blocked roads leading to the city, where Palestinians were also observing the strike.

Israeli forces have launched near daily raids in the West Bank in recent months, sparked by deadly attacks on Israelis.

Dozens of Palestinians have been killed by Israeli forces, including fighters and civilians.

Four Palestinian teenagers have been shot dead in the West Bank since Friday, according to the Palestinian health ministry.

Additionally, a 12-year-old boy shot in an earlier Israeli raid died from his wounds on Monday.

Israel seized the West Bank in the Six-Day War of 1967 and later annexed east Jerusalem in a move never recognised by most of the international community.