Israeli forces have shot dead an 18-year-old Palestinian man in the occupied West Bank city of Hebron, the Palestinian Health Ministry said.

The ministry identified the man as Badawi Masalmeh, adding that Israeli soldiers took his body after he died on Saturday.

The Israeli army said its forces spotted three people hurling firebombs at Israeli vehicles, which local media said belonged to illegal settlers, on a nearby route and fired at them.

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The two others were arrested at the scene, near the entrance of an illegal Jewish settlement on the outskirts of Hebron.

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According to local media reports, medics were barred from the scene of the incident, near the Palestinian town of Beit Awwa, around 22 kilometres west of Hebron.

The incident comes days after thousands of Palestinians demonstrated across the occupied West Bank against the recent announcement by the United States that it no longer believes Israeli settlements in the occupied West Bank violate international law.

The decision upended 40 years of American policy and embraced a hardline Israeli view at the expense of the Palestinian quest for statehood.

Palestinians and the majority of the international community say the settlements undermine hopes for a two-state solution by gobbling up land sought by the Palestinians.

According to several UN Security Council resolutions, the most recent in 2016, Israeli settlements are illegal under international law as they violate the Fourth Geneva Convention, which prohibits an occupying power from transferring its population to the area it occupies.

Israel captured West Bank and East Jerusalem in the 1967 war and quickly began settling the newly conquered territory.

Today, some 700,000 Israeli settlers, in addition to three million Palestinians,  live in the two areas.

A number of local and international human rights groups have raised concerns that Israeli security forces have used excessive force when confronting Palestinians who carried out attacks or were suspected of doing so.

The Israeli police relaxed its open-fire regulations in December 2015, permitting officers to open fire with live ammunition on those throwing stones or firebombs as an initial option, without having to use non-lethal weapons first.