Two Israeli off-duty soldiers and a Palestinian have died in a shootout near the West Bank town of Hebron, Israeli officials have said.
Israel's army launched a search for the Palestinian attackers
The two soldiers were attacked while hiking and returned fire with the assault rifles they were carrying.
A female friend who was with the two men escaped the attack lightly wounded, the officials said.
The town of Hebron is divided between Palestinians and Israelis, who live in the Kiryat Arba Jewish settlement.
The two soldiers, Ahikam Amihai, 20, and David Rubin, 21, were hiking in the hills near Hebron, when Palestinian gunmen opened fire from a jeep, Israel Army radio reported.
The pair were mistakenly described in previous reports as Jewish settlers.
They managed to return fire, reportedly killing one of the attackers and seriously wounding another, before being shot themselves, the Israeli military said.
The attackers' car was towed back to Hebron by Israeli soldiers
The two Israeli soldiers later died of their wounds, while the woman escaped and was taken to the nearby Kiryat Arba clinic.
Israeli officials said the other attackers had not been found, in spite of a search operation being launched.
It is not clear who was behind the attack, as more than one Palestinian organisation claimed responsibility for it.
Hebron has been a constant flashpoint, being the site of the Tomb of the Patriarchs, claimed by both Jews and Muslims as a holy place.
The incident happened hours after Israeli forces killed the bodyguard of the chief Palestinian negotiator with Israel, Ahmed Qurei.
The violence comes amid a row over Jewish settlement activity that has threatened to upset peace talks between the Israelis and the Palestinians.
At a Middle East peace conference in the US in November, the two sides agreed to pursue the goal of a Palestinian state by the end of next year.
The Israelis want the Palestinians to rein in militants and the Palestinians want the Israelis to freeze settlement construction.