He said he saw 31-year-old Yotam Ovadia "covered in blood ... walking slowly toward a auto and then falling".
Two other Israelis were wounded in the attack in Adam on Thursday.
Mr Ovadia was a father to two young children and was reportedly on his way home to cook a meal for his wife when he was killed.
Avigdor Lieberman announced 400 new homes would be built in Adam, near Ramallah, where a Palestinian fatally stabbed an Israeli man on Thursday.
"The best answer to terrorism is the expansion of settlements", Mr Lieberman said.
The dead man, 43-year-old Ghazi Abu Mustafa, was brought to a hospital tent staffed by his wife, a medic, who collapsed when she discovered him among the casualties, her colleagues said. The third victim, who also shot the Palestinian, was slightly wounded in the leg.
The military said it detained four Palestinians for questioning and set up security inspections at entrances to Kauber, the assailant's village, north of Jerusalem. An unnamed 14-year-old boy was also killed during clashes east of Rafah in southern Gaza.
The Palestinian news agency Wafa said three people were arrested. It follows a stabbing attack by a Palestinian.
The last stabbing attack in a West Bank settlement was in April 2018 when a Palestinian tried to stab an Israeli with a screwdriver near a petrol station in an industrial area connected to the Maale Adumim settlement east of Jerusalem.
US President Donald Trump's special envoy Jason Greenblatt called on Palestinian president Mahmud Abbas, whose Fatah movement leads the government in the West Bank, to condemn the attack.
The minister had already vowed to boost the construction project in May, just a week after dozens of Palestinian protesters were killed and more than 2,000 were injured by the IDF during protests against Israeli occupation near the Gaza border.
Lone Palestinian attackers have carried out multiple attacks against Israelis in recent years in the West Bank, Jerusalem and elsewhere.
Hamas, considered a terrorist organisation by most of the West, seized control of the Gaza Strip in 2007.