Israeli troops shot dead a Palestinian teenager as fresh clashes raged in the occupied West Bank and east Jerusalem yesterday.
The spike in violence has brought international calls for calm, with concerns the unrest could spin out of control and memories of past Palestinian uprisings still fresh.
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"We are not prepared to give immunity to anybody, not to any rioter... Or any terrorist, anywhere, and therefore there are no limits on the activities of the security forces," he said ahead of a special session of his security cabinet.
A joint statement by the police, army and Shin Bet domestic security agency said the five men arrested "belonged to the Hamas movement in Nablus" in the northern West Bank.
It said the suspects had confessed to shooting dead Rabbi Eitam Henkin and his wife Naam in their car as their children sat in the back.
Netanyahu is under pressure from right-wingers in his governing coalition after four Israelis have been killed in as many days and others wounded, including a two-year-old child.
Thousands turned out in Jerusalem for a rally organised by settlers urging Netanyahu to come down hard on militants and boost settlement building.
"The right answer, the only answer for terror, is to build and build and build," MP Oren Hazan, of Netanyahu's Likud party told AFP at the demonstration.
Yesterday afternoon, Israel soldiers shot dead the 13-year-old Palestinian in clashes at a refugee camp near Bethlehem, Palestinian authorities said.
He was the second Palestinian killed by Israeli fire in 24 hours. Dozens have been wounded.
An Israeli army spokeswoman said some 50 rioters hurled stones at security forces and "the force responded with 0.22-calibre rounds at the main instigators, identifying a hit".
She said there would be an investigation into the incident.
Further clashes between soldiers and protesters erupted later inside Bethlehem as well as across east Jerusalem, including Beit Hanina, where medics said a young Palestinian was critically wounded by live rounds.
Video purportedly showing Israeli police shoot dead a 19-year-old Palestinian accused of stabbing a 15-year-old Israeli early Sunday has added to tensions, with the man's family saying security forces executed him.
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