Some of the wounded had been hit by live ammunition, others by rubber bullets, the medics said.
The clashes erupted when a large convoy of Israeli military vehicles entered Al-Fawwar camp, near the flashpoint city of Hebron, witnesses said.
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An Israeli army spokeswoman said the troops were conducting "activity to uncover weaponry" in the camp, when "dozens of Palestinians hurled IEDs (improvised explosive devices), blocks and rocks" at them.
The troops "responded with riot dispersal means and fired 0.22 calibre bullets towards main instigators," the spokeswoman said, adding that the troops had found "two improvised handguns, other weapons and ammunition."
The clashes continued until around noon (0900 GMT), an AFP photographer reported.
The army closed off the Fawwar camp for 26 days last month after a gunman fired on an Israeli car on a nearby road causing a crash that killed the driver.
The Israeli army has been clamping down on Palestinian workshops manufacturing arms.
The Hebron area has been one of the main focuses of a wave of deadly unrest that has rocked Israel and the Palestinian territories since last October.
The violence has killed 219 Palestinians, 34 Israelis, two Americans, an Eritrean and a Sudanese, according to an AFP tally.
Most of the Palestinians killed were carrying out knife, gun or car-ramming attacks, Israeli authorities say.
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