KUFR NE'MEH (AFP) - Israeli troops on Tuesday killed an Islamic Jihad militant said to be behind the 2012 bombing of a Tel Aviv bus, officials said, with the Palestinian radical movement confirming his death.

The militant was killed as troops stormed an area between the West Bank villages of Bilin and Kufr Ne'meh, 10 kilometres northwest of Ramallah, sparking a gunfight which ended at a cave, local Palestinian witnesses and medics said.

The army confirmed the incident, naming the dead man as Mr Mohammed Assi and describing him as an Islamic Jihad militant responsible for the November 2012 bombing of a Tel Aviv bus that wounded 29 people.

"A wanted Palestinian terrorist was killed this morning in Bilin during a gunfight with the army while he was in a cave," tweeted army spokesman Avichay Adraee in Arabic.

In a separate Tweet, the army's official spokesman Peter Lerner described him as the "planner" of the Tel Aviv bombing.

"On 21st November 2012 a terrorist planted a bomb on a bus in #TelAviv injuring 29 people. This am its planner was killed in exchange of fire," he wrote.

"Mohammad Assi involved in #TelAviv bombing last Nov opened fire at security forces and was killed this am in the exchange of fire," he said, adding that two others also involved in the bombing were arrested.

Islamic Jihad confirmed Assi was one of its militants in a statement on its website and said that he was "assassinated by the occupation in Kufr Ne'meh." Local witnesses told AFP the incident began at 0200 GMT when Israeli troops entered Bilin then moved into an area between the village and nearby Kufr Ne'meh, sparking gunfire.

Troops surrounded a cave in the area and bulldozed it, a Palestinian medic at the scene said.

Local witnesses confirmed troops were hunting for Assi, saying he was a wanted Islamic Jihad activist.

The Tel Aviv bombing took place on November 21 on a bus near the defence ministry.

The attack came as Israel was engaged in a major air campaign in Gaza to stamp out cross-border rocket fire that ended with a mutual ceasefire several hours later.