Israeli soldiers carried out a manhunt Friday in the occupied West Bank, a day after the army blamed Palestinians for shooting dead an Israeli settler and wounding two others.

The army, which said Palestinian "terrorists" carried out the attack, deployed three extra battalions as well as special forces.

"We are in a physical, technological, intelligence hunt," Israeli army spokesman Brigadier General Ran Kochav told 103FM radio.

"We arrested last night a number of suspects... sooner or later we will find the perpetrators."

The victim was identified as religious student Yehuda Dimentman, 25, a married father and an Israeli settler. About 2,000 people attended his funeral on Friday in Jerusalem, an AFP journalist said.

Thursday's shooting is the latest violence in the past month which has seen Palestinian attacks on Israelis and the killing of Palestinians by Israeli troops during clashes.

Israel seized the West Bank in the 1967 Six-Day War. Since then nearly 700,000 Jewish Israelis have moved into West Bank and east Jerusalem settlements that much of the international community regard as illegal.

The shooting by "Palestinian assailants" as well as "several retaliatory attacks by Israeli settlers" on Friday morning are the latest of many recent incidents that highlight the volatility of the current situation, United Nations Middle East peace envoy Tor Wennesland said.

"I am alarmed by the escalating violence in the occupied West Bank, including east Jerusalem, which is claiming the lives of Israelis and Palestinians," he said in a statement.

Clashes

In Burqah, a village near the scene of Thursday's shooting, an AFP reporter saw settlers hurling stones at homes, with hundreds of Palestinian residents mobilising and Israeli soldiers deployed.

Elsewhere in the northern West Bank, Israeli police said they were investigating reports from the village of Qaryut that a Palestinian man had been hospitalised after settlers stormed his home.

Dimentman was shot while in a car while leaving the illegal outpost of Homesh on Thursday evening, and died en route to hospital, the Israeli army and medics said.

Two others in the car were injured by shattered glass, but their wounds were not reported to be serious.

"We will continue onward and we won't be broken," Dimentman's brother Shlomi said.

Israeli Prime Minister Naftali Bennett called Dimentman a "wise student full of love for Israel".

"A Jew was murdered only because of being a Jew living in his land," Bennett wrote on Twitter.

No one has claimed responsibility but multiple Palestinian organisations -- including the militant Islamist group Hamas which controls the Gaza Strip -- praised the shooting.

US State Department spokesman Ned Price condemned the killing of Dimentman, calling it a "terrorist attack".

Settler leader Yossi Dagan demanded the government respond by approving the settlement of Homesh, which Israel dismantled in 2005, but where settlers have since run a religious school.

The shooting is the third deadly incident in the past few days.

Last week Israeli police arrested a 14-year-old Palestinian girl suspected of stabbing her Israeli neighbour --  a 26-year-old mother walking with her children -- in annexed east Jerusalem's Sheikh Jarrah neighbourhood.

On Monday, Jamil al-Kayyal, a 31-year-old Palestinian man, was killed during a clash with Israeli forces in the West Bank city of Nablus.

Tensions have also been rising within Israel's ideologically divided coalition government over reports of violence by settlers on Palestinians.

The UN's Office for the Coordination of Humanitarian Affairs (OCHA) last month said there had been 410 attacks by settlers against Palestinians  -- against individuals and on property -- in the first 10 months of this year.

On Monday, Israeli Public Security Minister Omer Bar-Lev said he had discussed "settler violence and how to reduce tensions" in a meeting with the US State Department's Under Secretary for Political Affairs Victoria Nuland.

Bennett, a former settler leader, said settler violence was "marginal".