The violence came as Israel's right-wing Likud party, and the Labour party, worked to finalise agreement on a national unity government under Prime Minister-elect Ariel Sharon.
There were also clashes between Israeli troops and hundreds of Palestinians in Ramallah after Muslim prayers on Friday.
Earlier in the day, an Israeli soldier was killed and two wounded in an attack by Lebanese guerrillas in a disputed border area.
The violence came as Israel's right-wing Likud party, and the Labour party, worked to finalise agreement on a national unity government under Prime Minister-elect Ariel Sharon.
His defeated rival, Ehud Barak, has agreed in principle to stay on as defence minister, while the veteran Labour politician, Shimon Peres, is set to become foreign minister.
But Mr Barak's decision - coming so soon after announcing his retirement from public life following the election defeat - has been greeted with derision in the Israeli press and has angered some Labour colleagues.
"It is one mistake too many," said outgoing foreign minister Shlomo Ben-Ami on Israeli television.
He said Mr Barak had failed to set a "personal example" by not taking Labour into opposition where it could be a "true alternative" to Likud.
However, opinion polls show most Israelis support the idea of a unity government as a way of tackling the Palestinian uprising.
Violence
The two Palestinians shot dead in Hebron on Friday were Shaker al-Manasra, 25, who was hit in the neck and Essam al-Tawil, 29, who was shot in the stomach.
The attack, by the Shi'a group Hezbollah, was only the militants' second on an Israeli target in four months, and brought immediate shelling from the Israeli army in response.
Lebanon, backed by Syria, claims sovereignty over the Shebaa area and argues that the Israeli withdrawal from southern Lebanon last May is therefore incomplete - a view disputed by the United Nations.
Israeli debate
Ehud Barak called on his party's support in the setting up of the unity government.
"It is not the hour for internal dissension in the party, especially from members whose biographies are resumes of scheming and wrongdoing," Mr Barak told a meeting of Labour party activists in Tel Aviv.
He was referring to outgoing interior minister, Haim Ramon, who has been critical of Mr Barak's decision.
The Palestinian leadership greeted the prospect of an Israeli unity government as the end of the peace process.
"This policy closes the door to everything," said Palestinian information minister Yasser Abed Rabbo.
In Syria, a leader of the Hamas Palestinian movement told a rally at a refugee camp that Mr Sharon was planning a government of war, but that Palestinian guns would defeat it.
Labour is expected to meet early next week to decide whether
to endorse the proposed coalition which opinion polls show most Israelis support.
Both parties would have equal representation in the security cabinet, Israeli radio said, although the Yediot Aharonot newspaper said they were still deciding who would control the decision-making process at the top.
The newspaper said Mr Barak and Mr Sharon want decisions to be made between them, and then passed on to the cabinet for discussion and approval by vote.
In a concession to Labour, the unity government will not authorise any new Jewish settlements in the Palestinian territories, but would allow the natural growth of existing settlements, he added.