The Israeli Shin Bet internal security service and police said in a statement that the 29-year-old Palestinian suspect was seized over the killing of the 19-year-old woman during a raid in the Palestinian city of Ramallah in the occupied West Bank.
The body of Ori Ansbacher, 19, was found in the woods in the West Bank near Jerusalem on Thursday with stabbing wounds.
Hundreds of grieved and outraged Palestinian mourners buried on Saturday two teenagers, who were shot and killed on Friday by Israeli soldiers' gunfire near the border between the eastern Gaza Strip and Israel.
Police confirmed the suspect's account was that he had left his home in the West Bank in the morning armed with a knife and headed towards Jerusalem.
Prime Minister Benjamin Netanyahu commended the security forces for "apprehending - within a few hours - the abhorrent murderer".
Around 2 million people live in the Gaza Strip, which the United Nations has warned faces a severe humanitarian crisis. "There is laughter and play when he is home", said the mother, Fatma, soon after the body was carried away, wrapped in a Palestinian flag.
Ashraf al-Qedra, health ministry spokesman in Gaza, told reporters that Hamza Ishteiwi, 18 years old, was shot dead by Israeli soldiers' gunfire in eastern Gaza.
According to Palestinian health officials, two rioters died in the latest clashes. He was hit with a bullet in the neck. Palestinians say the weekly protests are led by civil society groups demanding an easing of the blockade and recognitition of their right to return to homes in Israel. Dozens of Palestinians have been killed and thousands have been wounded.
In addition, the statement said that scores of protesters suffered breathing problems due to the heavy use of tear gas by Israeli forces.