"From what we see, the shooting occurred over a long distance," a senior army source said. "At this stage, we have no clear direction as to the identity of the shooter," he added.
The soldier was evacuated to the Sha'arei Tzedek Medical Center in Jerusalem, where doctors tried to revive him, but he was pronounced dead soon after arrival.
Large numbers of security forces descended on the area and launched searches for the terrorists. The shooting occurred at the Tut Atarek Junction.
A riot by Palestinians was taking place near the shooting at the time, but it was too soon to link the two incidents, the source said, noting that disturbances in the area "are routine."
"Shots were fired near the Machpela Cave," police spokesman Mickey Rosenfeld said, using the Hebrew name for a Jewish and Islamic holy site also known as the Tomb of Abraham, long a flashpoint between the two communities.
He said police believed the perpetrator was Palestinian.