Israeli army spokesman Lieutenant Colonel Peter Lerner said a "Palestinian approached a vehicle that was in the area and asked them to stop... And shot the two from close range."
A spokeswoman at Sheba Hospital confirmed that one of the men had died and the other was lightly wounded.
The attack took place near the Dolev settlement, according to Israel's emergency medical service Magen David Adom, which stated the victims were in their 20s.
The army said the two men were in a car at the time of the shooting.
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The army said it was conducting a manhunt for the perpetrator of the attack, which took place northwest of Ramallah in the Israeli-occupied West Bank.
West Bank settlements are considered illegal under international law and Israelis have been attacked previously in and near them.
Three Israeli teenagers were wounded by a Palestinian who hit them with his car near the Alon Shvut settlement in the West Bank last month, with the Shin Bet domestic security service saying the perpetrator had confessed to carrying out the attack for "nationalistic reasons."