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He said it appeared it was a "lone-wolf attack".

On Sunday morning, Na'alwa arrived to the offices of the Alon Group factory in the Barkan industrial zone armed with an illegally manufactured Carlo-style submachine gun.

Meanwhile, the third Israeli settler, who was shot and severely injured in her stomach, was transferred to to the Beilinson Hospital at the Rabin Medical Center to receive medical treatment and is reported to be in moderate condition.

Speaking at Barkan, Yossi Dagan, head of a regional council for Israeli settlements in the area, said there were "Jewish and Palestinian workers standing outside together and crying".

"This was a serious terrorist attack", the military said in a statement.

Israeli President Reuven Rivlin said: "This was not only an attack on innocent people going about their daily lives, it was also an attack on the possibility of Israelis and Palestinians co-existing peacefully". The funeral for Hajbi will take place Monday afternoon.

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Na'alwa was described by his father, who works in Israel, as "a quiet guy who didn't look for trouble", according to Haaretz. He may have had an argument with someone there and made a decision to do what he did. "We know he is still armed and considered risky", he added.

Barkan industrial park is adjacent to the settlement of Barkan and was established in the early 1980s.

The Palestinian Islamic Jihad militant group called the attack a "natural response" to Israeli crimes in Gaza, Jerusalem and Khan al-Ahmar, a Bedouin village in the West Bank slated for demolition. "That's what I think happened".

While insisting the attack was an act of terrorism, he acknowledged there were "other factors involved as well", without elaborating.

Defense Minister Avigdor Liberman said it was only a "matter of time" before Na'alwa would be apprehended.