DUMA: A Palestinian toddler was burned to death and four family members wounded in an arson attack by Jewish settlers on two homes in the Israeli-occupied West Bank on Friday.

Israel's Prime Minister Benjamin Netanyahu called the firebombing in Duma village near the northern city of Nablus “an act of terrorism in every respect“ and ordered security forces to hunt down the assailants.

The attack further stoked tensions between Israelis and Palestinians, two days after Netanyahu controversially approved 300 new settler homes in the West Bank.

The Palestine Liberation Organisation (PLO) said it held Netanyahu's government “fully responsible” for the death of 18-month-old Ali Saad Dawabsha, arguing it was “a direct consequence of decades of impunity given by the Israeli government to settler terrorism."

Palestinian president Mahmud Abbas called for an investigation by the International Criminal Court (ICC) in The Hague, while hundreds of Palestinians protested after leaving mosques following Friday prayers, with reports of sporadic clashes.

Israeli troops shot and wounded one protester during clashes in the city of Hebron, the army said.

Several thousand people also took to the streets in Duma for the funeral of the toddler, whose body was wrapped in a Palestinian flag.

The family's small home of brick and concrete was blackened and gutted by fire, a Star of David along with “revenge” and “long live the Messiah“ was seen spray-painted in Hebrew.

According to Palestinian security officials, four assailants believed to be settlers set the house on fire before dawn at the entrance to the village and scrawled the graffiti before fleeing to a nearby Jewish settlement.

The Israeli military and army radio said two homes had been set ablaze by two masked men, with a child killed and four family members wounded.

Palestinian sources said those wounded included the toddler's parents -- mother Riham, 26, and father Saad -- as well as four-year-old brother Ahmed.

The mother was in critical condition with third-degree burns covering 90 per cent of her body, an Israeli doctor told public radio.The father had burns on 80pc of his body and the son 60pc, with all of their lives in danger.

The identity of the fourth person wounded as reported by the military was not immediately clear. Local media said one of the two homes set ablaze was empty.

Israeli Defence Minister Moshe Yaalon said such attacks would not be tolerated, adding “we will not allow terrorists to take the lives of Palestinians.“ With the country's leaders seeking to calm tensions, President Reuven Rivlin was planning to visit the victims in hospital later in the day.

Tensions over settlements

Islamist movement Hamas had already on Thursday called for a “day of rage“ against what it called Israeli aggression, and on Friday said the attack “makes the occupier's soldiers and settlers legitimate targets everywhere."

Israeli authorities mobilised a large deployment in Jerusalem's Old City around Al-Aqsa mosque and barred men under 50 years old from entering the complex.

The arson attack follows days of tensions surrounding settlements in the West Bank, with right-wing groups opposing the demolition of two buildings under construction that the Israeli High Court said were illegal.

The demolition began on Wednesday, but Netanyahu authorised the immediate construction of 300 settler homes in the same area the same day.

Settlers had clashed with police when they moved in to demolish the buildings.

Education Minister Naftali Bennett of the right-wing Jewish Home party had opposed the demolitions and addressed protesters at the site.

Netanyahu holds only a one-seat majority in parliament following March elections and settler groups wield significant influence in his government.

West Bank settlements are viewed as illegal under international law, but not by the Israeli government.

They are also major impediments to peace negotiations with the Palestinians, who see the land as part of a future independent state, and Western nations have urged Israel to halt construction.

The European Union (EU) on Friday called on Israel to show “zero tolerance” for settler violence, while Jordan, the only Arab state apart from Egypt to have signed peace with Israel, strongly condemned the arson attack.

“This ugly crime could have been avoided if the Israeli government had not ignored the rights of the Palestinian people and turned its back on peace in the region,” government spokesman Mohammed Momani said.

Extreme-right Israeli activists have committed acts of vandalism and violence against Palestinians and Arab Israelis for years, attacking Christian and Muslim places of worship and even Israeli soldiers.

Such attacks rarely lead to convictions.