Those killed were identified as a man and woman, both in their 30s and employees at the same factory.
The woman, 54, was taken to hospital, where her condition was stabilised. Then Na'alowa fled the scene.
Two Israelis were critically injured and later died of their wounds in the attack that took place in an industrial area near the settlement of Barkan in the central West Bank, according to the Israeli Broadcasting Corporation.
Israel's President Reuven Rivlin and USA ambassador David Friedman both condemned the shooting in the Barkan industrial zone, where thousands of Palestinians and an equal numbers of Jewish Israelis have worked side-by-side for decades, as an attack on coexistence.
He said it appeared it was a "lone-wolf attack".
Ashraf Walid Suleiman Na'alowa from the village of Shweika near Tulkarem entered the industrial park on Sunday morning, shooting two Israelis and severely wounding a third using a locally produced knockoff of the Swedish Carl Gustav sub-machine gun.
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Israeli border guards, police and military forces continue their massive manhunt for the terrorist who carried out the attack at the Barkan Industrial Park near the city of Ariel in Samaria.
Israeli Prime Minister Benjamin Netanyahu condemned the attack and vowed deal with the "reprehensible murderer" to "the fullest extent of the law".
On Sunday, the Palestinian Islamist group Hamas praised the attack, calling it a "message to young people of the West Bank and Gaza who are under siege".
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.
"No way in our industrial zone", he said, describing an atmosphere of camaraderie in Barkan".
More than 600,000 Jews live in about 140 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem.