The military said the woman pulled out a knife at the entrance to a military base and began approaching civilians at the spot.
A local West Bank settler leader, Gershon Mesika, said he noticed the ruckus and veered his vehicle off the road and hit the woman. A soldier on the scene then fired at her and killed her.
Elsewhere in the West Bank, a Palestinian driving a taxi cab tried to run over Israelis east of Jerusalem, police said.
After crashing his car, he came out with a knife and tried to stab people but was shot dead by a bystander before he could harm anyone.
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Israeli politicians have encouraged licensed gun owners to carry their weapons during the wave of unrest.
Israeli Prime Minister Benjamin Netanyahu commended citizens for being on "maximum alert."
"I must say that we are showing such awareness, with considerable resourcefulness and courage, and this is deserving of all praise. We are still fighting and will continue to do so," he said at his weekly Cabinet meeting.
It will mark his first visit to the area to meet Israeli and Palestinian leaders in more than a year.
On Saturday night, a Palestinian attacker stabbed four people in southern Israel. Following hours of an extensive manhunt, police forces found the 18-year-old Palestinian hiding late Saturday in the yard of a home close to where he carried out his stabbing spree in the southern town of Kiryat Gat.
Over the past two months, Palestinian attacks have killed 17 Israelis, mostly in stabbings, while 86 Palestinians have been killed by Israeli fire.
The wave of violence began over tensions surrounding a sensitive Jerusalem holy site and has since spread across Israel, the West Bank and the Gaza border.