The shooting comes just three weeks before a general election, on April 9, and puts the long-serving Israeli leader in the difficult position of not appearing too soft in dealing with such attacks, but also avoiding further inflaming tensions.
Netanyahu draws a large portion of his base from the roughly 450,000 Israeli Jews who live in settlements in the West Bank, territory that Israel captured in the 1967 Israeli-Arab war and Palestinians hope to include in a future sovereign state. Most of the international community deem these settlements as illegal.
Immediately after the shooting, two militant Palestinian factions - Hamas and Islamic Jihad - released statements praising the attack as "heroic." Hamas, the Islamist group that rules the Gaza Strip and has an increasingly powerful presence in the West Bank, said the shooting was in response to "the crimes of the Israeli occupation."
Such attacks on Israelis have increased tensions in the West Bank in recent months. Though figures published by Israeli authorities show an overall decrease in the number of attacks, they have grown more severe.
Official figures also show a rise in violence by settlers against Palestinians. The January shooting of a Palestinian man in the village of Mughayyir, allegedly by members of a volunteer security team from the nearby settlement of Adei Ad, is still being investigated.
The latest incident follows two deadly shootings by Palestinians against Israelis in December. In the first, near the settlement of Ofra, a pregnant woman was shot in the stomach, forcing her to give birth via emergency Caesarean section to a baby boy, who later died. The second killed two soldiers.
Also, in the same area in October, a Palestinian gunman shot two Israeli civilians and then the scene, evading an Israeli military manhunt for more than two months.
In its statement on the attack, Hamas said the shooting was in response to recent events, particularly a dispute last week over the opening of a gate at one of the entrances to the holy al-Aqsa Mosque compound in Jerusalem, as well as the expansion of Israeli settlements and the confiscation of Palestinian lands.
"This courageous and bold action confirms that the choice of resistance in all its forms is the strongest and most effective option to deter the occupation," Hamas said in the statement. It called the West Bank a strategic asset for the Palestinian resistance.
The Islamic Jihad said the settlement of Ariel, not far from where the shooting occurred, was built on land "stolen from the Palestinians.
"The voice came from the West Bank to alert everyone to the basic contradiction of the occupation," said Daoud Shihab of the Islamic Jihad's information office.