Soldiers surrounded the home late on Tuesday in Az-Zawiya in the Salfit region of the occupied West Bank before carrying out the demolition using explosives and heavy machinery.
Israel raid wounds three in central Syria: state media
Omar Amin Abu Laila was accused of fatally stabbing soldier Gal Keidan, 19, and stealing his weapon on March 17, the army said at the time.
He then fired at Israeli motorists, hitting 47-year-old rabbi Ahiad Ettinger, a resident of the Eli settlement, who later died of his wounds, according to the army.
Abu Laila, 19, was shot dead two days later during an arrest raid by Israeli forces in the West Bank village of Abwein, north of Ramallah.
Palestinian killed by Israel fire ahead of border protests: Gaza ministry
Israeli authorities accused Abu Laila of opening fire at forces, who killed him.
Israel routinely demolishes the homes of Palestinians accused of attacks as part of a policy it says discourages future violence.
But human rights groups and Palestinians say the practice amounts to collective punishment, with family members forced to pay for the acts of a relative.
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