Two Israelis have been killed and a third wounded in an industrial area near the illegal settlement of Ariel in the occupied West Bank, Israeli police said. The man and one woman died at the scene.
He held a valid work permit and had been absent from work in the days leading up to the attack, the army said.
Israeli Defence Minister Avigdor Lieberman said the Israeli army and police are searching for the shooter.
The military called the shooting a terrorist attack and said the assailant, a 23-year-old from a nearby Palestinian town, was an employee of the factory where the assault took place.
Levengrond Yehezkel, who was buried late Sunday, had been bound to a chair by Naalwa with cable ties before being shot, according to her father.
He shot another woman in the stomach, moderately wounding her. Closed-circuit footage from the scene showed a man holding a handgun and wearing a backpack, fleeing down a flight of stairs and then dashing past stunned onlookers.
The Shin Bet confirmed on Monday that the arrests included the suspect's brother and sister.
IDF spokesman Brig Gen Ronen Manelis said the Shin Bet internal security service had concluded that the attack was an act of terrorism, but added that the gunman might have had "additional motives" that were not nationalistic.
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"There will be no security for anyone as long as the Palestinian people are denied their rights", the group said in a statement.
"One of the workers was sacked and he didn't like the owner".
The Palestinian Islamic Jihad group called the attack a "natural response" to Israeli crimes in Gaza, Jerusalem and Khan al-Ahmar, a Bedouin village in the West Bank slated for demolition.
Israel settlements are considered illegal under worldwide law and major stumbling blocks to peace as they are built on land the Palestinians see as part of their future state. The settlements are considered illegal under global law, though Israel disputes this.
A number of attacks have occurred at that location, the Gush Etzion Junction.
Mother Hava and relatives and friends mourn during the funeral of Kim Levengrond Yehezkel, aged 28, one of the two Israelis killed earlier in a terrorist attack, on October 7, 2018, in Rosh Haayin.
More than 260 Palestinians have also been killed over the same period. Others have been killed in clashes with Israeli troops.