The Israeli army has imposed strict security measures in the Palestinian West Bank town of Ramallah, in response to Wednesday evening's attack outside the town.
No-one has claimed responsibility for the shooting which killed two Israeli settlers and left five others injured.
No-one goes in or out of Ramallah without permission from the authorities.
Israeli soldiers search cars as they try to leave or enter the West Bank town.
The army has also blocked side roads from Ramallah with barbed wire and metal bars.
The town is now completely sealed off.
Palestinian police have also set up roadblocks and patrol the area, including the scene of the shooting, in an effort to locate the attackers.
Palestinian Authority Chairman Yasser Arafat refused to make any comment on the shooting.
But Israeli government spokesman Moshe Fogel blamed the Palestinian Authority for not doing enough to crack down on militant extremists.
"This tragic terrorist attack is a test case for the Palestinian authority, if they will live up to their part of the agreement and that is preventing terror. As far as we're concerned the Palestinian authority is obligated to exert at one hundred per cent effort to find these terrorists and bring them to trial."
SUPER CAPTION: Moshe Fogel, Israeli Government spokesman
In the West Bank settlement of Psagot, members of the settler council met to discuss last night's events and to decide their position on the attack.
"We warned when Oslo was first signed that it would result in a Bosnia/Lebanonisation of Israel, that's what we're seeing now. Oslo is dead, the question is whether or not the government of Israel is ready to recognise that Oslo is dead."
SUPER CAPTION: Yeichel Leiter, West Bank Settlers spokesman, West Bank
The shooting comes at a time of deep distrust between Benjamin Netanyahu's hard-line government and the Palestinian Authority.
Talks on an overdue Israeli troop pullback in the West Bank town of Hebron are deadlocked, and Palestinians are angry about Israel's plans to build 132 homes for Jews in the heart of an Arab neighbourhood in east Jerusalem.
Speaking from Ramallah Hanan Ashrawi, Minister for Higher Education in the Palestinian National Authority also addressed the issue.
She warned that the reasons for violence in the region had to be addressed in order to avoid the explosion of the Middle East
"My reaction is that we live in a situation of tremendous complexity, volatility and great injustice...we live in a powder keg situation - it's bound to explode at any moment. The fact that there was another incident of violence demonstrates beyond any doubt that real reasons for violence have to be addressed - that the peace process has to proceed with vision and with courage to change realities on the ground, that collective punishments and transforming the Palestinian territories into a collective prison is conducive to violence and that there has to be the will to proceed with the peace process effectively and to transform realities on the ground.
SUPERCAPTION: Hanan Ashrawi, Minister for Higher Education in the Palestinian National Authority
This latest attack is yet another setback in already troubled and uneasy Arab- Israeli relations.