Israeli soldiers killed a Palestinian Authority police officer and wounded two others during an exchange of fire in Bethlehem on Wednesday.
Palestinian police mistook the undercover Israeli unit for criminals and opened fire on their vehicle, according to Israel's Ynet news portal. The Israelis returned fire, hitting three of the officers.
Local Palestinians quickly surrounded the scene and hurled stones and glass bottles at the Israeli soldiers, who were shortly after extracted by additional forces.
Israeli army commanders later met with Palestinian police officials and the tension resulting from the incident was reportedly defused.
Palestinian police officers carried out a fatal drive-by terrorist shooting against a young Israeli father last week in Samaria, prompting concerns that uniformed Palestinian forces were resuming direct anti-Israel violence just when the peace process was finally picking back up.