Four others were wounded, one of them seriously, when two Palestinian gunmen opened fire at a restaurant and petrol station on a highway outside Eli.
Israel's military said the assailants were "Hamas-affiliated terrorists".
One was shot dead at the scene by an armed civilian, while the second fled in a stolen car and was later killed by Israeli forces in the town of Tubas.
Israel's prime minister said "all options are open" in response to what he called the "shocking and abhorrent terrorist attack", which followed heightened violence across the West Bank in recent days.
A spokesman for Hamas said the shooting was a response to an Israeli military raid in Jenin on Monday in which six Palestinians were killed.
Tuesday's shooting took place just to the south of Eli on Highway 60, the main road between the Palestinian cities of Ramallah and Nablus.
Israel Defense Forces (IDF) spokesman Rear Admiral Daniel Hagari said in a statement that the two gunmen arrived in a car from the village of Urif, about 10km (6 miles) to the north.
They opened fire at a roadside hummus restaurant first, killing three civilians, then shot dead another civilian in the forecourt of the petrol station, he added.
One of the gunmen was shot and killed by an armed civilian, but the other was able to flee the scene in a stolen car.
Adm Hagari said IDF soldiers and officers from the Shin Bet security service later found the vehicle near Tubas, 29km to the north-east, and shot and killed the second gunman.
A paramedic with the Magen David Adom (MDA) ambulance service, Motty Dahan, said that he and his colleagues saw a "complex site" when they arrived at the scene of the attack. He added that there were seven victims suffering from gunshot wounds.
"We performed medical checks and began providing medical treatment, three of the victims were evacuated in MDA MICUs [Mobile Intensive Care Units] to hospital, and unfortunately four of the victims were pronounced dead."
Three of those killed were identified by Israeli media as 18-year-old Elisha Antman and 64-year-old Ofer Feirman from Eli, as well as 21-year-old Harel Masoud from Yad Binyamin, a town in central Israel.
Israeli Prime Minister Benjamin Netanyahu said in a statement: "From the depths of my heart, I send condolences to the families of those who were murdered, may God avenge them, and on behalf of the entire people, I send my best wishes for a swift recovery to the wounded."
