The IDF said Sunday that Na'alwa was known to security forces but had no past terror offenses and no formal ties to terrorist groups, saying it appeared to have been a "lone-wolf attack".
Surveillance camera footage broadcast on Israeli television showed a man armed with a rifle fleeing down stairs and running away from the factory.
Israeli security forces raided the village of a Palestinian suspected of shooting two Israelis dead, the army said Monday, making arrests while the assailant himself remained at large.
Police initially suspected that the shooting may have been a revenge attack on the man's employers, but army spokesperson Lt. Col. Jonathan Conricus later called it a "terrorist attack" adding that other unspecified factors were involved.
Meanwhile, the third Israeli settler, who was shot and severely injured in her stomach, was transferred to to the Beilinson Hospital at the Rabin Medical Center to receive medical treatment and is reported to be in moderate condition.
Speaking at the beginning of the weekly cabinet meeting, Israeli Prime Minister Benjamin Netanyahu said he was certain the perpetrator would be caught and brought to justice.
Palestinians work side by side with Israelis in the industrial zone.
Israeli President Reuven Rivlin said: "This was not only an attack on innocent people going about their daily lives, it was also an attack on the possibility of Israelis and Palestinians co-existing peacefully".
More than 600,000 Jews live in about 140 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem.
The Israeli army has launched a manhunt for the attacker.
Last month, a Palestinian teenager stabbed to death the US-born settler Ari Fuld, a well-known pro-Israel advocate, at a shopping centre in Gush Etzion.