A customs officer was shot by smugglers on Tuesday evening near Bethlehem, local police said.
The agent, who was not named, was attempting to ambush a group of smugglers when they fired on him, injuring the official in the leg, police told.
Customs officers returned fire, injuring one of the smugglers in the shoulder, police said.
The group escaped towards the Israeli army checkpoint at the intersection of the north and south West Bank, known as the Container checkpoint.
The smugglers were operating on Wadi al-Nar (Valley of Fire) road, east of Bethlehem, when the ambush took place. The dramatic winding road hugs a steep valley on both sides, and is a common site of car accidents.
It is the main artery between the south, north and east West Bank, and lies in area designated "B" under the Oslo Accords, which gave Israeli authorities joint security control over 25 percent of the West Bank designated as such, and full control over a further 62 percent called "Area C."
The injured officer was taken to Beit Jala public hospital, before undergoing surgery at the private-facility the Bethlehem Arab Society, police said.