The Israeli soldier was rushed to hospital, but died later
The acting governor of the town blamed Israel for the blast, which came after an earlier exchange of fire near Nablus.
In that incident, three Palestinian gunmen and an Israeli soldier died, after the gunmen opened fire on an army jeep.
The renewed violence comes amid efforts to resume the peace process and just as Israel says it plans to pull out of another West Bank town by the end of the week.
"It could be in the next few days, today, tomorrow," Raanan Gissin, a spokesman for Prime Minister Ariel Sharon, told the Reuters news agency.
The two men killed in Jenin were named as Ikrima Isteidi and Majdi Tayyed, members of Palestinian leader Yasser Arafat's Fatah faction.
Isteidi was wanted by Israel, according to acting governor of Jenin, Haider Ir-Sheid.
US pressure
Security officials on both sides have been meeting to coordinate Israel's withdrawal from Palestinian-controlled towns it invaded after the assassination of its tourism minister, Rehavam Zeevi.
Israel has withdrawn from three towns - Bethlehem, Beit Jala and Qalqilya in the past week, following intense pressure from the US. It has yet to withdraw from Jenin, Tul Karm and Ramallah.
The US, concerned that regional instability could jeopardise its anti-Taleban coalition, has put pressure on both sides to stop the violence.
US Secretary of State Colin Powell told Egyptian TV on Monday that the 13-month-old intifada, or uprising, reflected the frustrations of the Palestinian people, but that it would not solve their problems.
"What we need to do is to end the violence, bring that period of violence to an end," Mr Powell said, adding that he had asked Palestinian leader Yasser Arafat to make a greater effort to end the violence.
At the same time, Mr Powell criticised Israel's use of force against Palestinians.
Diplomatic efforts
Amid ongoing diplomatic efforts to resume the peace process, Israel's Defence Minister, Binyamin Ben-Eliezer, might visit Egypt within a week for high-level talks, diplomatic sources said in Cairo.
And Israel's dovish Foreign Minister Shimon Peres has been working with the hawkish Prime Minister, Ariel Sharon, on a new Middle East peace plan.
"My (peace) plan is still being worked out... and we are trying to see if I can find something jointly with the prime minister," Mr Peres told Israel's Army Radio on Tuesday.
Israeli media said the plan called for the establishment of a demilitarised Palestinian state buffered by Israeli-controlled security zones in the West Bank.
According to the liberal daily Haaretz, a Palestinian state would be created in stages, with the Gaza Strip, most of which is under Palestinian control, serving as a model.
A Palestinian official dismissed the plan.
"Serious talks with the Israelis will resume once we hear them talking about Palestinian rights and a withdrawal from the territories, ending settlements, establishing the Palestinian state and the return of Jerusalem and refugees," said Ahmed Abdel-Rahman, a senior aide to Mr Arafat.
Palestinian state
The London-based Arabic daily al-Hayat has reported that Mr Arafat is considering unilaterally declaring an independent Palestinian state during a UN General Assembly meeting at the end of the week.
But Ahmed Tibi, an Israeli Arab parliament member and former advisor to Mr Arafat, has played down the al-Hayat report.
"This idea has not been discussed in the necessary PLO (Palestine Liberation Organisation) forums," he said. "There is no such plan at this time as far as I know."