"An assailant drew a knife and attempted to stab a soldier," a statement by the Israeli army said, AFP reported.
The Palestinian health ministry confirmed that a woman was killed but could not immediately give her age or name.
Since a surge in violence began in October, Israeli forces have killed at least 166 Palestinians, 101 of them alleged attackers. Other Palestinians have died during anti-Israeli protests.
Tensions were fuelled by Israel’s imposition of restrictions on the entry of Palestinian worshipers into the al-Aqsa Mosque compound. The mosque in East al-Quds (Jerusalem) is the third holiest site in Islam.