An Israeli drone killed three militant gunmen in the West Bank on Wednesday, in a rare strike that came hours after settlers attacked Palestinian towns, torching cars and buildings in retaliation for an attack by Hamas gunmen a day earlier.

The strike near the flashpoint city of Jenin came amid a surge in violence over recent days in the occupied West Bank, where for over a year the military has been conducting regular sweeps leading to repeated clashes with Palestinian fighters.

The Israeli military (IDF) said a squad of militants was identified in a vehicle after they carried out a shooting attack near the town of Jalamah.

A statement by the Islamic Jihad militant group said two of the men were Islamic Jihad fighters while the third was from the Aqsa Martyrs Brigades armed wing of the Fatah movement.

Although surveillance drones are commonplace, the strike by an Elbit Hermes drone, which followed a rare use of helicopter gunships in the operation in Jenin, was the first by the Israeli military in the West Bank since 2006, the IDF said.

"This is about removing a threat – we identified a vehicle shooting at the crossing and removed the threat," IDF spokesman Daniel Hagari said in a tweet.

Hours earlier, Israeli settlers rampaged through Palestinian towns in the West Bank in retaliation for the killing of four Israelis by Hamas gunmen who opened fire on a roadside restaurant near the settlement of Eli.

In Turmus Ayya, a prosperous town near Ramallah, footage showed cars ablaze with thick clouds of black smoke swirling above and people carrying an injured person to an ambulance.

"They tried to enter the courtyard, they set the cars on fire, they started shooting towards the house using live bullets and stones and they broke the balconies," said resident Noman Shalab.

The IDF said troops had entered Turmus Ayya to put out fires and prevent clashes and it said the Israeli civilians had left the town.

"We will not accept any provocations to the police or the security forces in these places or anywhere else," Prime Minister Benjamin Netanyahu said in a statement.

One Palestinian was shot dead during the attack while at least one other was critically injured, Palestinian health officials said.

Residents of a number of other Palestinian towns reported settler attacks after the killings and senior ministers in Netanyahu's government called for a full-scale military operation across the West Bank.

Yaqoub Oweis, chairman of the village council of Al-Lubban Al-Sharqeya near Ramallah, said Israeli soldiers and police stood by as a large group of settlers burned a petrol station, orchards, a cement factory and dozens of cars.

"The attack was unprecedented and abnormal," he said. "There was heavy gunfire but we couldn't distinguish whether it came from settlers or the soldiers because of the darkness."