Two Israeli special forces members were wounded during the raid on Jenin that began late last night and continued into Thursday morning, the Israeli military said. A number of arrests were made.
The Palestinian health ministry confirmed a Palestinian was killed in the operation, naming him as Ahmed Jarrar, 22.
Jarrar was the son of Nasser Jarrar, a militant of Islamist movement Hamas who was killed while fighting Israeli forces in the second Palestinian intifada, his family said.
The Israeli military said that during the raid "a violent riot was instigated. Palestinian rioters hurled IEDs, blocks and rocks and fired at the forces."
"In order to disperse the violent riot, forces responded with riot dispersal means and fired live rounds selectively," it said.
Palestinian witnesses said they saw at least two Palestinians arrested, with clashes continuing today.
Videos posted online by Palestinians showed multiple Israeli armoured vehicles entering the city.
Israeli Prime Minister Benjamin Netanyahu, on a visit to India, said in a statement that "we will track down all who attack us and we will hold them accountable."
Israeli forces have been hunting for the assailants since then, with roadblocks and checkpoints set up around Nablus following the murder.
There are frequent tensions between Israeli settlers in the Nablus area and Palestinians. Some 600,000 Israeli settlers live in the West Bank and annexed east Jerusalem alongside nearly three million Palestinians.
US President Donald Trump's recognition of Jerusalem as Israel's capital on December 6 triggered unrest in the Palestinian territories, although it was unclear if the murder was related.
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