Iyad Shalabaya, 37, a commander within the armed wing of the Islamic movement, was asleep when Israeli soldiers stormed his house in Noor Shams refugee camp to the east of the city and fired three gunshots at him, West Bank-based Maan news agency quoted his brother as saying.
Israeli forces also arrested 15 people from the town, most of them members and supporters of Hamas, which had claimed reasonability for killing four Israeli settlers and wounding two in attacks in the West Bank more than two weeks ago.
Hamas, which controls the Gaza Strip, accused Palestinian security forces of helping Israel in "assassinating" Shalabaya, who was interrogated by security services loyal to President Mahmoud Abbas two days ago, Hamas said in a written statement.
The Israeli forces took the body of Shalabaya for a few hours before arranging with the Palestinian forces to return it, security sources said.
The raid is considered the first planned targeting of a Palestinian commander in the West Bank since Israel and the Palestinian National Authority (PNA) resumed peace talks early this month.