Palestinian militants launched an attackwith guns and knives near Jerusalem's Old City on Friday, killing a border policewoman and wounding three other people in the first attack within Israel or the West Bank claimed by the militant group Islamic State.
"Instead of condemning the attack, Fatah... issued a statement in which it condemn (s) the officers who killed the terrorists, and praised the murderers as heroes", Netanyahu said, referring to Palestinian president Mahmud Abbas's party.
The attack marks the first time that IS have claimed an attack inside Israel, the monitoring group SITE said.
Hamas, the Palestinian Islamist group that runs the Gaza Strip, dismissed the IS claim, saying the attackers had come from among its own ranks and those of the leftist Popular Front for the Liberation of Palestine (PFLP).
"It was a local cell", Ms Simri said.
According to police, two perpetrators opened fire at a group of officers who returned fire, and a third stabbed the border policewoman a short distance away before being shot.
It has claimed several rocket attacks from the Sinai into Israel.
The PFLP said its two attackers, 19-year-old Osama Ata and 18-year-old Baraa Ata, were members of the same clan who both spend time in Israeli prisons.
Israel lightened security and travel restrictions last month for the Muslim holiday but has revoked some travel permits in response to the attack.
Israeli emergency personnel carry the body of one of three Palestinians who carried out shooting and stabbing attacks on 16 June.
Damascus Gate is adjacent to the wall of the East Jerusalem's Old City, a busy area with predominate Palestinian presence. In 2016, a truck-ramming attack that killed four soldiers at a Jerusalem tourist site could have had links to the group, Israeli authorities said, but IS did not claim responsibility. In that period, some 250 Palestinians were killed by Israeli fire. In their village of Deir Abu Mashal, near Ramallah, relatives of the three denied any connection to IS or the other groups.
Israeli police arrested two people after a standoff at Jerusalem's flashpoint Al-Aqsa mosque on Sunday, Israeli police said, as tension remains high following deadly attack days earlier.
Since September 2015, Palestinian assailants have killed 43 Israelis, two visiting Americans and a British student, mainly in stabbing, shooting and vehicular attacks.
Netanyahu is also considering making the area around the flashpoint Damascus Gate, where the attacks took place, a "sterile zone" that bans Palestinian entries, according to the statement.