JERUSALEM, Nov 15 (Reuters) - A Palestinian killed three Israelis near a Jewish settlement in the occupied West Bank and was hailed by Islamist militants as a hero on Tuesday, hours before Israel swore in lawmakers set to return Benjamin Netanyahu to power atop a hard-right coalition.
The attack at Ariel settlement's industrial zone, which Israeli officials said was carried out by a knife-wielding man who was later shot dead by a soldier, was the bloodiest for Israel since it intensified West Bank raids in March.
Scores of Palestinians, among them gunmen and civilians, have been killed since - a surge in bloodshed that has deepened rancour at their long-frustrated hopes of achieving statehood.
Much of the focus is on the West Bank, which Israel - in the face of foreign censure - has peppered with Jewish settlements, deeming the land a biblical birthright and security bulwark.
The Religious Zionism party, led by hardline West Bank settlers, placed third in Israel's Nov. 1 election, making it the likely no. 2 partner in the next government under ex-Prime Minister Netanyahu's conservative Likud, which won most votes.
"Only an iron fist will cut down terrorism," Religious Zionism co-head Itamar Ben-Gvir tweeted about the Ariel attack, adding that he would demand looser open-fire rules for soldiers.
The rise of Ben-Gvir, who has past criminal convictions for racist incitement and support for an outlawed Jewish militant group, has also stirred worry among Israel's 21% Arab minority.
He says he has moderated, and wants to be police minister. Netanyahu told reporters the coalition would be agreed "soon".
Addressing the Knesset before its 120 new members were sworn in, President Isaac Herzog said the Ariel attack "shall not succeed in rattling our might and our cohesion".
"Our domestic arguments reflect the power of our democracy," he said, while urging the lawmakers to look out for "minorities who are fearful that their needs will not be on the agenda".
The Palestinian health ministry described the man shot after the Ariel rampage as an 18-year-old from a neighbouring village.
Israeli officials said he started stabbing people after entering the industrial zone, where both Israelis and Palestinians work, and rammed at least one person while trying to flee in a car.
He was licensed to work in the industrial zone and had no known militant affiliations, according to Israeli officials.
In Washington, the U.S. State Department said it was deeply concerned by violence in the occupied West Bank.
"We convey profound condolences to the families and loved ones of the Israeli and Palestinian civilians, including children, who have been killed in the past 48 hours," spokesperson Ned Price said in a statement.
Israel blames the Palestinian Authority (PA), which exercises limited rule in the West Bank, for failing to control militant factions such as Islamist Hamas, which controls the Gaza Strip, rejects peace with Israel and praised the Ariel attack.
The PA, deeply unpopular in the West Bank, says its hands are tied by Israel and that it cannot prevent violence against Palestinians by settlers who enjoy army protection.
Palestinians "will not accept that Israeli occupation continues forever", PA President Mahmoud Abbas said in a statement. "We will take serious and decisive steps to protect the rights of our people and end the reckless Israeli escalation."
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