The terrorist killed Tuesday in a cave by IDF and Shin Bet special forces in Samaria is Mohammed Assi, 28, a planner of a Tel Aviv bus bombing last year.
The attack, which injured 29, was carried out in the course of the IDF counter-terror operation in Gaza, Pillar of Defense.
Assi had been in Israeli custody several times in the past and was being hunted after by the Shin Bet.
He was eliminated Tuesday after holing up in a cave near Dolev, in the western Binyamin region. Special IDF and Shin Bet forces killed him after exchanging fire with him for about an hour. There were no Israeli casualties.
An IDF spokesman said that troops had arrested two other people who were also involved in the bombing.
"A wanted Palestinian terrorist was killed this morning in Bilin during a gunfight with the army while he was in a cave," tweeted army spokesman Avichay Adraee in Arabic.
In a separate Tweet, the army's official spokesman Peter Lerner described him as the "planner" of the Tel Aviv bombing.
"On 21st November 2012 a terrorist planted a bomb on a bus in #TelAviv injuring 29 people. This a.m. its planner was killed in exchange of fire," he wrote.
"Mohammad Assi involved in #TelAviv bombing last Nov. opened fire at security forces and was killed this a.m. in the exchange of fire," he said, adding that two others also involved in the bombing were arrested.
Islamic Jihad confirmed Assi was one of its members in a statement on its website which said he was "assassinated by the occupation in Kufr Ne'meh."
Local witnesses told AFP the incident began at 5:00 am (0200 GMT) when Israeli troops entered Bil'in, then moved into an area between the village and nearby Kufr Ne'meh.
Troops then surrounded a cave in the area and bulldozed it, a Palestinian Authority medic at the scene said.
Local witnesses confirmed troops were hunting for Assi, saying he was a wanted Islamic Jihad operative.
The bus attack took place November 21, 2012. In the attack, a terrorist left a bomb that exploded in a Dan bus originating in the nearby city of Bat Yam on Shaul HaMelech street in central Tel Aviv, around noon. Three people suffered serious injuries, two of whom needed surgery.
No one was killed, although the area teems with Israeli civilians as it is the location of the Tel Aviv courts, banks and major businesses.
Twenty-one people were evacuated to Icholov Hospital, just one street away, most of them with lesser injuries.