The woman who later succumbed to her wounds was found handcuffed on the floor. The 54-year-old told the paramedics she heard a loud noise and went to check its source. After seeing her, the terrorist shot at her and she hid under a table.
Some 5,000 Palestinians are employed in Israeli-owned businesses in the Barken industrial area.
Security camera footage shows the Palestinian escaping the scene after shooting three people.
The IDF called the shooting attack "a serious terror attack."
According to the defense establishment, there was no prior intelligence regarding intentions to carry out the attack.
Security forces are currently conducting a manhunt to capture the assailant who fled the scene.
MDA Paramedics received the report about the shooting at 07:39am, arrived at the scene and began giving initial treatment to the wounded.
The now moderately-wounded woman was evacuated to the Beilinson Hospital at the Rabin Medical Center in Petah Tikva In severe condition after enduring a gunshot to her stomach.
She is no longer in a life-threatening condition.
The police and IDF force closed the area and are currently conducting extensive searches after the perpetrator who resides in the village of Shweika near Tulkarem. According to estimations he is still armed.
The initial investigation indicates that the suspect arrived armed with an M-16 assault rifle to one of the offices in the Barkan industrial area, which symbolizes coexistence between Arab and Jews who work there together.
He then went up to the second floor, opened fire, and injured three people.
The suspect worked for seven months in the industrial area and was granted a work permit which was supposed to expire next month.
Prime Minister Benjamin Netanyahu addressed the terror attack at opening of the government meeting.
"This was a very severe terror attack in which two Israelis were brutally murdered and a citizen was also wounded," the premier said.
"The security forces are in pursuit of the assailant. I am certain that they will apprehend him and we will deal with him to the fullest extent of the law.
"On behalf of myself and all government ministers I would like to send condolences to the families of the two people who were murdered and our hopes and prayers for a swift recovery for the woman who was wounded," he concluded.
Yossi Dagan, head of the Shomron Regional Council dubbed the incident as "a serious security incident."
"This is a serious incident in an area which symbolizes a bridge of coexistence in the West Bank. More than 8,000 employees work in the Barkan industrial area, with half of them being Jewish and half residents of the Palestinian Authority," he explained.
"I see here Arabs and Jews who sit together and cry," he exclaimed.
"I want to stress one thing—this incident is very grave, but we'll never break. The Zionist enterprise will continue vigorously operating in the West Bank as well as all over Israel," he asserted.
"We will continue building settlements, and developing the education and the industry. This despicable incident won't deter us. We will never break," he stated.
The Hamas terror organization welcomed the terror attack. "The Barkan shooting is a new chapter in our resistance in the West Bank," Hamas said.
"The incident has proven that the attempts of the Palestinian Authority to normalize relations with the Zionist occupier are unsuccessful.
"The Palestinian youth wants confrontation, "the terror organization added.
Daoud Shehab, an Islamic Jihad spokesman, described the shooting attack as reply to "Israel's war crimes in Gaza, Jerusalem, the Bedouin village of Khan al-Ahmar and the damage Israel causes to the al-Aqsa mosque."
"We call on our people to rise up against the settlements terror until the West Bank is free from it," he added.
President Reuven Rivlin also addressed the terror attack, saying "I'm appalled and distressed by the horrible terror attack carried out in the Barkan industrial area. My heart goes out to the victim's families, and I pray for the recovery of the woman who survived. This was an attack against the idea of Israelis and Palestinian coexisting, and living peacefully side by side.
"I call upon the Palestinian leadership to condemn this despicable terror attack and to join the efforts of finding the assailant and his accomplices," Rivlin said.
"We will not rest until the law is exhausted with the perpetrators," he added.
IDF Spokesperson Brigadier General Ronen Manelis explained that a chase is being conducted to capture the terrorists, while the Shin Bet is investigating the incident.
Manelis said that despite that the terrorist had a work permit, the fact he managed to enter the factory with a rifle is yet to be examined.
"The terrorist might have additional motives (which are not nationalistically-motivated), but that doesn't change the fact this is a terror attack," he added.
"The industrial area is a zone of coexistence where Palestinian with a work permit are employed alongside Israelis. We'll review this incident and decide how to proceed from here. Nevertheless, preserving the coexistence is one of the army's missions," the IDF Spokesperson went on to say.
He also noted that 3,300 Palestinian with a work permit are currently employed in Barkan as well as a similar amount of Israeli Jews.
Defense Minister Avigdor Lieberman tweeted, "The IDF and the security forces are conducting a manhunt to capture the terrorist. It's only a matter of time until we apprehend him (and bring him to justice)."