Israel will stay in the two towns for now
Local people said soldiers accompanied by tanks and an armoured bulldozer entered Tell shortly after 0300 (0100GMT).
Some villagers said Mohammed Hassan Reihan was shot while trying to escape, but others said he had opened fire at the Israeli soldiers.
The killing came as Washington undertook to step up diplomatic efforts to secure peace in the Middle East.
Reihan had been on an Israeli wanted list for the killing of two settlers in the nearby settlement of Yitzhar in 1998.
The Israeli army said merely that troops were in Tell to arrest people who participated in attacks against Israelis, and did not confirm any deaths.
It said it will not leave until its mission is complete.
According to eyewitnesses in Tell, villagers were rounded up and taken to a local school for ID checks, and at least one home was demolished.
At least ten people were arrested.
Tell overlooks a road where an Israeli army officer was killed last week in an ambush and it was also the home village of Yasser Asidi, a Palestinian militant killed by Israeli forces earlier in November, allegedly en route to Israel to carry out a suicide bombing attack.
Peace drive
US Secretary of State Colin Powell has pledged that Washington will work on fresh ideas over the coming weeks to help bring about peace in the Middle East.
Mr Powell was speaking at the end of a day of talks at the UN which included meetings with the Israeli Foreign Minister Shimon Peres and Palestinian leader Yasser Arafat.
Referring to a speech by President George W Bush, he also confirmed that it was now official US policy to refer to the Palestinian territories as "Palestine".
Mr Bush had said on Saturday that the US was "working toward the day when two states - Israel and Palestine - live peacefully together within secure and recognized borders".
Mr Arafat said later he was deeply grateful for Mr Bush's remarks.
Withdrawal halted
Israeli Defence Minister Benyamin Ben-Eliezer has said the country's armed forces are delaying their pullback from two Palestinian areas because of warnings of terror attacks.
Although Israeli troops have withdrawn from four Palestinian towns, they remain in Tulkarm and Jenin.
Shortly after Mr Ben-Eliezer made his announcement, an Israeli man was killed and another injured in a shooting attack in the central Israeli town of Kfar Hess.
In Bethlehem, one of the towns the Israeli army has left, a Palestinian man was killed as he was attempting to make a bomb in his blacksmith's shop.
Palestinian sources say he was a member of the militant group Islamic Jihad.