Berlin police said the 28-year-old Albanian, whose name wasn't released, was arrested Friday evening in Usti nad Labem, near the German border.
They say the Albanian met the victim, 22-year-old Yosi Damari, at a Berlin hostel where the Israeli had checked in on April 3, and suspect he carried out the killing the following day. They issued a European arrest warrant.
Police said the motive remains unclear. Germany will seek the suspect's extradition.
Damari's body was found by passers-by early Sunday morning. He had suffered massive head injuries.
Israel's embassy in Berlin said Thursday that the victim had approached it last week to seek help in buying a plane ticket home.
A Berlin rabbi said the man approached the Jewish community last Friday asking for food and a place to sleep.
Berlin police said that they believe he was killed on Saturday evening