Mohamed Fakih, of the Islamist group Hamas, died in a gun battle with troops who surrounded his hideout in the village of Surif.
Three other suspects were arrested in the night-time operation.
Rabbi Michael "Miki" Mark was killed when his car crashed after being fired on near Hebron on 1 July.
His wife and two of his children who were in the car at the time were wounded.
Israeli media reports said Fakih, 29, opened fire on troops as they approached the building where he was hiding. He was killed in an ensuing firefight.
Troops fired an anti-tank missile at the house and virtually demolished it with a bulldozer after the gun battle.
Hamas said Fakih belonged to its armed wing, the the Izz al-Din Qassam Brigades.
The Israeli military said the three Palestinians who were arrested were linked to the ambush on the car and were "members of a terrorist cell with ties to Hamas".
A spokesman for the Israeli prime minister said a member of the Palestinian security forces who was recently arrested had driven Fakih to the location of the attack.
Rabbi Mark's death brought to 35 the number of Israelis killed in a wave of knife, gun and car-ramming attacks since October.
More than 200 Palestinians - mostly attackers, Israel says - have also been killed in that period.
Israeli forces have shot dead a Palestinian who they said was behind a recent attack which killed an Israeli father-of-10 in the West Bank.