He then shot a second victim, a 54-year-old female, wounding her in the stomach.
Meanwhile, Palestinian group Fatah said Israel's denial of Palestinian rights was the cause of such attacks.
Surveillance camera footage broadcast on Israeli television showed a man armed with a rifle fleeing down stairs and running away from the factory.
Army spokesman Jonathan Conricus called it a "terrorist attack" but added that other unspecified factors were involved.
Magen David Adom emergency medical services said their medics had entered a building at Barkan where they found a man and a woman without pulse, and pronounced them dead.
Israeli Defence Minister Avigdor Lieberman said the Israeli army and police are searching for the shooter. "I am sure we will catch him and bring him to justice soon". At his weekly Cabinet meeting, Netanyahu said they had been killed "with great cruelty".
Israel's President Reuven Rivlin and USA ambassador David Friedman both condemned the shooting in the Barkan industrial zone, where thousands of Palestinians and an equal numbers of Jewish Israelis have worked side-by-side for decades, as an attack on coexistence.
Manchester Unitedd in trouble after arriving late for Champions League match
However, I wouldn't be surprised to see Alexis Sanchez axed on Saturday as his shocking form continues. After the game, he liked a picture of himself which had the caption: "It's time for Mourinho to go".
The Palestinian militant group Hamas praised the attack, saying it was a "natural response to the crimes of the Israeli occupation", but it did not claim to be behind it.
Palestinians work side by side with Israelis in the industrial zone.
More than 50 Israelis and several foreign nationals have been killed since late 2015 in a series of stabbings, shootings and car-ramming attacks, predominantly by Palestinians or Israeli Arabs.
Barkan industrial park is next to the settlement of Barkan and was established in the early 1980s.
Israeli captured the West Bank in the 1967 Six-Day War.
Last month, a Palestinian teenager stabbed an Israeli to death at a junction at the entrance to a large bloc of Israeli settlements in the West Bank near Jerusalem.