The 12-year-old was shot in the head and abdomen by Israeli troops who had confused his toy gun for a real rifle.
"Soldiers identified him as an armed man and shot him. After he was
evacuated they found a gun that turned out to be made of plastic," an Israeli army spokesman said.
Violence flared between Israeli troops and gunmen from Islamic Jihad and the Al-Aqsa Martyrs Brigades, after more than 30 army jeeps moved into Jenin shadowed by two helicopters.
The operation targeting Palestinian militants comes as part of Israel’s ongoing campaign in the wake of last week's suicide bombing in which five Israelis were killed.
Seventeen suspected militants were earlier arrested in the West Bank.
Jenin has been the scene of some of the fiercest fighting over the five
years of the intifada.
Fifty-four Palestinians and 23 Israeli soldiers were killed during clashes in the city in April 2002.
In Israel, a soldier was lightly wounded when militants in the Gaza Strip fired a mortar shell across the border.
The Israeli military responded by firing artillery into the Palestinian territory.
The violence erupted in spite of a call for calm by Palestinian leader Mahmud Abbas at the start of Eid-al-Fitr celebrations to mark the end of the Muslim holy month of Ramadan.
Mr Abbas delivered his appeal under intense pressure from Israel and Washington to disarm militant groups and stop their attacks.
"The situation should be calm and all these clashes that have erupted here and there should stop," Abbas told reporters after prayers in Gaza City.
In the worst flareup following Israel's historic pullout from the Gaza
Strip in September, 14 Palestinians and six Israelis have been killed in Middle East violence since an October 26 suicide bombing.
The Gaza withdrawal had sparked hopes from the international community of a genuine breakthrough in the peace process, but continued violence has seen radical faction Hamas threaten not to renew an informal truce at the year-end.