The Palestinian was shot in the chest and fatally wounded at the Shuafat refugee camp in annexed east Jerusalem, according to the Red Crescent and hospital sources.
The incident followed days of unrest, including rioting in east Jerusalem and the West Bank as well as a spate of stabbing attacks targeting Israelis.
Over the last week, four Israelis and seven Palestinians have been killed in the violence.
Four of the Palestinians were killed after they allegedly attacked Israelis. Three others were killed during clashes with Israeli security forces, including a 13-year-old near Bethlehem.
The unrest and violence have sparked fears of a broader Palestinian uprising and warnings of a third intifada.
The suspect from Shuafat, Subhi Abu Khalifah, 19, was accused of stabbing a 25-year-old Jewish man in Jerusalem, leaving him in serious condition.
Khalifah was later arrested.