Israeli forces fire at Palestinian refugees in Ramallah camp
Mahdi Hamdan from Jalazoun refugee camp told the WAFA news agency that the Palestinians were targeted in an area close to the illegal settlement of Beit El.
The two injured Palestinians are in moderate conditions, health officials said.
Israeli police claimed the Palestinians were about to hurl Molotov cocktails at the settlement when they were shot.
Palestinian witnesses were unable to confirm what happened.
Israel has occupied the West Bank illegally since 1967, committing various crimes against Palestinian civilians, monitors say.
More than 600,000 Israeli Jews live in settlements in the occupied West Bank and East Jerusalem, in constructions considered illegal under international law.
Often, Israel forces Palestinians to demolish their own homes under the pretext of not having a building permit.
Applications for building permits are known to take years to be processed, giving Israeli courts a loophole to increase Palestinian home demolitions by branding structures as "illegal".
Four-out-of-five Palestinians in occupied East Jerusalem live under the poverty line, and applying for building permits comes with various taxes and fees amounting to tens of thousands of dollars.