The perpetrator managed to flee after the shooting, prompting a massive search and the deployment of additional troops to the area to prevent copycat attacks.
This was the third time Karajeh is detained by Israel, he was released from Israeli prisons past year; he was previously detained twice, once in 2013 and another time in 2016, during which he served nearly 40 months of imprisonment.
A woman aged 54 was also found wounded and in moderate condition, the medical services said.
"This was a very severe terrorist attack in which two Israelis were brutally murdered and a citizen was also wounded", Prime Minister Benjamin Netanyahu said at the opening of the weekly cabinet meeting in Jerusalem.
Hamas, the Islamist movement that runs the Gaza Strip, welcomed the attack and called it a "natural response to the crimes of the Israeli occupation".
The Palestinian Islamic Jihad militant group issued a similar statement.
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Israeli forces detained rights activist Hasan Karajeh after raiding his home in Safa, West Bank. The Barkan Industrial Park includes approximately 120 businesses and factories and a workforce of 20,000, half of them Palestinian Arabs.
The industrial zone is located next to Israeli settlement Barkan and near the settlement of Ariel in the north of the West Bank.
Every Friday, Palestinians across the West Bank stage rallies to protest Israel's longstanding policy of building Jewish settlements on confiscated Palestinian land.
Some Israeli media reported the suspect had been recently fired from his job at the site, raising speculation the attack may have been motivated by a personal vendetta.
More than 50 Israelis and several foreign nationals have been killed since late 2015 in a series of stabbings, shootings and car-ramming attacks, predominantly by Palestinians or Israeli Arabs.
The Israeli army detained a total of 378 Palestinians last month, including 10 women and 52 children, according to three Palestinian advocacy groups.