The victim, Ari Fuld, 45, was well-known amongst settlers as a pro-Israel advocate.
Israeli police said the Palestinian who stabbed him in the back at a shopping mall in the Etzion bloc of Jewish settlements south of Jerusalem was shot and wounded by one of several armed civilians - including a bleeding Fuld - who gave chase.
The suspected assailant was identified by his family as Khalil Youssef Jabarin, 17, from the Yatta village in southern West Bank. He was taken into custody.
Palestinian street attacks against Israelis, many carried out by assailants with no known affiliation to militant groups, have been sporadic since 2015, a year after peace talks collapsed.
Hundreds of mourners attended Fuld's funeral at the Kfar Etzion settlement in the West Bank.
Israeli Prime Minister Benjamin Netanyahu paid a condolence visit to Fuld's family.
Western-backed Palestinian President Mahmoud Abbas made what appeared to be an indirect reference to the killing while meeting former Israeli officials in Ramallah, the official Palestinian Wafa news agency said.
"Abbas reaffirmed the commitment of the Palestinian side to achieving peace through peaceful, popular resistance, because killing, settlement building, destruction and displacing of residents will not achieve security and peace for any party in the region," Wafa quoted him as saying.
Fawzi Barhoum, a spokesman for the Hamas militant group that rules the Gaza Strip, called the West Bank stabbing a "natural response to Israeli crimes against Palestinians" in occupied territory.
It did not claim responsibility for the attack.
Most countries view Israeli settlements, on occupied land Palestinians claim for a state as illegal. Israel disputes this.