Omar Kawasmeh lived on a different floor of the same building, according to officials in the city of Hebron.
TV footage showed a bloodstained bed and shell casings in the man’s bedroom.
In a statement, the Israeli military said it “regrets the outcome of the incident” and was investigating. It said the wanted militant had been involved in planning suicide bombings before his arrest by the Palestinian Authority two years ago.
The raid targeted one of six Hamas fighters released from prison on Thursday by the West-backed Palestinian Authority.