It was the latest incident in nearly two months of knife, gun and car-ramming attacks by Palestinians and came a day after a visit by US Secretary of State John Kerry failed to produce any breakthrough.
"A Palestinian assailant stabbed and wounded an Israeli at the Al Fawwar junction," outside the flashpoint city of Hebron, a focal point of the recent violence, a statement from the military said.
"In response to the immediate danger, forces on site fired at the attacker."
Palestinians identified him as Mohammad Shubaki, 19, from Al Fawwar refugee camp.
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A doctor said he had suffered bullet wounds to his chest and stomach.
The stabbing victim was in "stable" condition, a surgeon at Shaare Zedek's trauma unit told reporters.
Kerry warned today that the conflict between Israel and the Palestinians could worsen beyond repair unless both sides made rapid compromises.
"As you know, we're very concerned about the violence and the potential for the situation to spin out of control," Kerry told reporters as he arrived back in Boston after talks with both Israeli and Palestinian leaders yesterday.
Kerry had hoped to mediate gestures that would ease tensions in his separate talks with Prime Minister Benjamin Netanyahu and president Mamud Abbas.
There were scant signs of major progress, however, and Netanyahu told him that civilian Palestinian projects would be allowed to advance only when Israel experienced a "return of the quiet," an Israeli official said.
The premier also conditioned Palestinian construction in Israeli-controlled parts of the West Bank on international recognition of Israel's right to build in existing settlement blocs.
Jewish settlements in the occupied West Bank are seen as illegal under international law and major stumbling blocks to peace efforts since they are built on land Palestinians see as part of their future state.
"Every US administration since 1967, Democrat and Republican alike, has opposed Israeli settlement activity beyond the 1967 lines, and this administration's been no different and will be no different," State Department deputy spokesman Mark Toner said.
Kerry at the same time expressed strong support for Israel and condemned Palestinian attacks when he met Netanyahu.
Many of the Palestinians killed have been alleged attackers, while others were shot during demonstrations and clashes with Israeli security forces.