The guard was lightly wounded at the entrance to the Karmei Tzur settlement north of Hebron, the army said in a statement.
Having surrounded the building where Jarrar had taken refuge, Israeli forces opened fire on him as he emerged from the hideout with an M-16 rifle.
Palestinian territories have remained dogged by tension since U.S. President Donald Trump recognized Jerusalem as Israel's capital last December.
Two Israelis have been killed in that time frame.
Hundreds of Palestinians have been shot, detained, or killed over the past two years in alleged attempted stabbing attacks against mostly uniformed Israeli soldiers or security officials.
Meanwhile, Israeli troops combed Deir Istiya town, northwest of Salfit, following the killing of an Israeli settler in a stabbing attack at the entrance of Ariel settlement.More news: North Korea Sold Weapons to Syria and Myanmar
The troops "responded with riot dispersal means and fired warning shots in the air", it said.
In a separate incident, another Palestinian youth was seriously injured in an apparent hit-and-run attack by an Israeli settler on Wednesday evening, al-Araby reported.
The soldiers later conducted invasions of nearby villages and violent searches and injured 29 Palestinians.
Hamas's armed wing, the Ezzedine al-Qassam Brigades, said it was a "Qassam bullet" that killed Shevach, 35, though it was unclear if the Hamas leadership was claiming direct responsibility for the attack or whether the cell acted alone. Commandos had already killed one of the terrorists involved and captured another.
Israel's government regards Jerusalem as the eternal and indivisible capital of the country, although that is not recognised internationally.
PA Prime Minister Rami Hamdallah reiterated the claim that "settlement expansion", as well as Israel's military control in certain areas of the West Bank, were the main issues preventing the existence of a strong Palestinian economy.