Israel's military has launched a West Bank manhunt, setting up checkpoints and blocking roads, after a Palestinian gunman killed two Israeli soldiers at a bus stop outside a West Bank settlement and sped away.

The shooting added to a deadly week that claimed seven lives, including an Israeli newborn, a 60-year-old Palestinian businessman and three Palestinian assailants, two of them members of the group Hamas.

Israeli Prime Minister Benjamin Netanyahu said he would "settle accounts" with yesterday's attackers, while Palestinian President Mahmoud Abbas said Israel had created a violent environment. Netanyahu beefed up troop levels in the West Bank, ordered detentions of Hamas activists and called for assailants' homes to be demolished.

Netanyahu also said he would legalise thousands of existing West Bank settlement homes whose status was in question, and ordered his attorney general to make arrangements for construction of 82 new homes in Ofra, the scene of one of this week's attacks.

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- AP