The Israeli military believes an armed fighter crossed the border into Israel from Lebanon, before carrying out a roadside bomb on Monday.
A bomb explosion in northern Israel seriously injured an Israeli Arab.
The military now says forces shot the suspected attacker in a car near the border and that he had an explosive belt, an assault rifle and a pistol.
He is investigating whether the Lebanese group Hezbollah was involved, which would mark a significant escalation.
Israel and Hezbollah, backed by Iran, had a month-long war in 2006. Monday’s bombing took place at Megiddo Junction – a main road intersection about 57 kilometers (35 miles) south of the Lebanese border.
A 21-year-old resident of the nearby village of Salem, named by Israeli media as Sherif al-Din, was wounded by shrapnel in the head and body.
Health officials said he remained in serious condition at the Haifa city hospital on Wednesday morning.
On Wednesday afternoon, the Israel Defense Forces (IDF) announced that the suspected attacker was discovered in a car outside the border town of Shlomi hours after Monday’s attack.
Officials from the Shin Bet security service and the Yamam police special forces unit shot and killed the suspect in an arrest attempt, the IDF said, explaining that they believed he represented an ” obvious danger” to them. According to the IDF, he was “detected in possession of weapons, including explosive belts ready to detonate”.
The driver of the vehicle, an Israeli citizen, was arrested and is still being questioned.
The IDF said its current assumption is that the suspect travelled from Lebanon to Israel on Saturday or Sunday, carried out the bombing, then tried to return, demanding the Israelis take him to the border.
He also said he was “investigating the possibility that the terrorist organization Hezbollah was involved”.
The IDF declined to confirm whether it knew the identity of the attacker. But if it were a cross-border attack by a Hezbollah fighter, it would be the first known such incident in years and potentially trigger another serious escalation.
More than 1,000 Lebanese and 159 Israelis were killed in the 2006 conflict between Israel and Hezbollah, which erupted after Hezbollah fighters launched a cross-border attack that killed eight Israeli soldiers and two others. kidnapped.
The two sides have not engaged in major skirmishes since, although there have been sporadic clashes, and in 2018 Israel said it had discovered a network of “attack tunnels” run by Hezbollah. dug under the border.
UN peacekeepers are deployed along the so-called Blue Line marking the border between Lebanon and Israel, the two sides are officially still at war.