Hundreds of Palestinians, in return, rioted after Friday's prayers, burning tires and throwing rocks in at least two locations in the West Bank.
Unidentified settlers overnight entered the village of Yasouf, near the northern West Bank city of Nablus, forced the door of the local mosque and poured gasoline in the library, burning bookshelves and prayer rugs.
Palestinian police spokesman Munir Jagoub told the German Press Agency dpa that the fire caused serious damage to the library, where copies of the Quran are kept.
The settlers also spray-painted hate slogans in Hebrew, one of which, on the floor in black letters, said, "prepare for price tag, regards from Effi."
The phrase was a reference to threats by radical settlers to put a "price tag" on Prime Minister Benjamin Netanyahu's decision to suspend the construction of new homes in West Bank settlements for 10 months. Effi is an Israeli male name.
Residents rushed to the mosque to extinguish the fire and prevent it from spreading to the rest of the building. Israeli soldiers arrived at the village after the attack, said the police spokesman.
The vandals were suspected of having come from the nearby Jewish settlement of Tapuah. Some 200 Palestinians from the village marched toward the settlement after the end of Friday's prayers, a military spokeswoman in Tel Aviv said.
They threw stones at Israeli soldiers who arrived at the scene. Six Palestinians were reported treated for teargas inhalation. An Israeli border policeman was lightly injured in the face by a stone
Further south on the West Bank, near the central city of Ramallah, some 300 Palestinians hurled rocks at Israeli security forces and burnt tires outside the village of Shuqba, the military spokeswoman said.
Palestinians also threw firebombs and rocks at an Israeli settler's car travelling south-east of Qalqiliya, she added.
Israeli Defence Minister Ehud Barak condemned the arson attack in the mosque, calling it an "extremist action" meant to hurt attempts by the government to revive peace talks with the Palestinians.
Netanyahu announced the partial settlement moratorium last week, after coming under pressure from the US to stop Israeli construction in the occupied West Bank.
Some 3,400 homes in West Bank settlements whose construction has already begun are exempt from the 10-month suspension, as are public buildings such as schools and kindergartens. East Jerusalem is also excluded from the moratorium.
Palestinian President Mahmoud Abbas, who has made a full settlement freeze a precondition for holding peace talks with the Netanyahu government, has rejected the move.
The Israeli military issued a statement, saying it sent a top army official to speak personally with senior members of the Palestinian Authority and tell them the Israel Defence Forces viewed the incident "gravely" and "are working to locate the perpetrators."
Danny Dayan, the head of the West Bank Settlers Council, called the mosque attack "both evil and foolish" and said it was damaging to the settlements.
But the Shomron Regional Council, responsible for settlements in the northern half of the West Bank, played down the incident and denied Jews were behind it, claiming instead it had been carried out by a "mentally-ill person" or as a "provocation."
Some 150 Palestinians and left-wing Israeli activists, meanwhile, marched in Jerusalem from the city centre to the Arab neighbourhood of Sheikh Jarrah, to protest against Israeli demolitions of Palestinian houses built without permits in East Jerusalem.
dpa mak ok mga ms