"There is no doubt about the terrorist nature of the attack," which happened in Arad, police spokesman Micky Rosenfeld told AFP, adding that the assailants escaped.
Earlier in the day an Israeli settler shot dead a Palestinian in the occupied West Bank after a group of Israeli hikers was targeted by Palestinian stone-throwers.
Since a wave of violence began in October 2015, at least 309 Palestinians or Arab Israelis, 51 Israelis and seven foreigners have been killed in a series of attacks, according to an AFP count.
Others were shot dead in protests and clashes, while some were killed in Israeli air strikes on Gaza.
Violence is considered to have subsided greatly in recent months.
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