The attack, which came as US envoy Jason Greenblatt was in Jerusalem for talks on relaunching the moribund Middle East peace process, drew condemnation from Israeli officials who demanded action from the Palestinian leadership.
"A terrorist who arrived at the rear gate of Har Adar along with Palestinian labourers entering the settlement.... pulled out a weapon and opened fire at the force at the site," police said.
"Three Israelis were killed in the attack, another was wounded and the terrorist was neutralised."
Police later said the Palestinian had died of his wounds.
The shooter was identified by police as a 37-year-old man from Beit Surik, a Palestinian village near Har Adar, who carried a work permit for the settlement.
As he approached the checkpoint at the entrance to Har Adar, he aroused the suspicion of security forces, who ordered him to halt, police said.
He then pulled out a pistol and opened fire on border police and civilian security guards, before being shot.
The wounded Israeli was admitted to Hadassah hospital in Jerusalem in serious condition, the hospital said.
The incident, at a settlement northwest of Jerusalem that lies near several Palestinian villages, comes nearly two years after a wave of unrest broke out.
The violence had greatly subsided in recent months.
- 'Palestinian reception' -
"The terrible attack at Har Adar is the Palestinian reception for US envoy Jason Greenblatt," she said.
"The American efforts must focus first of all on ending the murderous Palestinian terror."
Hotovely renewed the Israeli government's call for the Palestinian Authority to stop paying allowances to the families of those who lost their lives carrying out attacks.
"There's no point negotiating with someone who just fans the flames of terror and continues to pay terrorist's families," she said.
The issue is a deeply divisive one, with many Palestinians seeing those killed carrying out attacks against the "occupation forces" as martyrs, while Israelis see them as "terrorists".
Since October 2015, the unrest in Israel and the Palestinian territories has killed at least 295 Palestinians or Arab Israelis, 50 Israelis, two Americans, two Jordanians, an Eritrean, a Sudanese and a Briton, according to an AFP toll.
Israeli authorities say that most of the Palestinians killed were carrying out knife, gun or car-ramming attacks.
Others were shot dead in protests and clashes, while some were killed in Israeli air strikes on the Gaza Strip.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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