Raziel Shevah, a 35-year-old rabbi, was killed late on Tuesday while driving near the wildcat settlement where he lived, Havat Gilad near the northern West Bank city of Nablus.
Some 22 gunshots were found in his car, Israel's army radio reported. The gunshots reportedly came from a passing vehicle.
"Entrances and exits to and from the villages surrounding Nablus will be possible only after security checks," the military said in a statement.
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"The review of the incident is ongoing. Based on situation assessments, it was decided to reinforce the area with additional forces."
The area frequently sees tensions between hardline Israeli settlers and Palestinians.
Palestinian security sources said they were not aware of any arrests yet, but added that Israeli settlers in the area had thrown stones at Palestinian cars.
Israeli officials strongly denounced the attack, while Hamas, the Islamist movement that runs the Gaza Strip, welcomed it.
Sporadic unrest has occurred since US President Donald Trump provoked Palestinian anger by recognising Jerusalem as Israel's capital on December 6.
Fourteen Palestinians have been killed since then, with most of them shot dead in clashes with Israeli forces.
It was unclear if Tuesday's shooting had any link to Trump's announcement.
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