An Israeli army spokeswoman said the pre-dawn raid was to "confiscate terror funds" held in the shop in the occupied West Bank.
She said the money changer "failed to comply with the army instructions to open the safe," and so "the soldiers proceeded to a controlled detonation of the safe."
The resulting fire spread to the nearby vegetable market before being extinguished, witnesses said.
Following the explosion, there were minor clashes between Israeli soldiers and Palestinians near al-Manara Square in central Ramallah.
One witness said the forces arrived with the owner of the store, whom he identified as Ghazi al-Ajouli.
"They went in and took the money. After taking the money they went out and detonated the store and then a fire started," the man who gave his name as Mohammed told AFP.
"Thank God people are safe," he added.
Ramallah, home to the Palestinian Authority, is under complete Palestinian control as stipulated by the Oslo peace agreements of the early 1990s.
A spokesman for Palestinian prime minister Rami Hamdallah's office condemned what he said was Israel's violation of agreements.
Israeli forces last month raided the Ramallah offices of a Palestinian television station, accusing it of incitement.
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