Thousands of Palestinians in Hebron on Thursday mourned the death of a teenager killed by Israeli forces on his birthday after he allegedly threatened them with a toy gun.

Sixteen-year-old Mohamed Ziad Salayma was shot dead on Wednesday evening at an Israeli checkpoint in the southern West Bank city.

Israeli police said he was shot after threatening border policemen in the city with a weapon, which turned out to be a toy.

"A young Palestinian man approached a post manned by border guards. One of them asked him for his identity card. The Palestinian attacked him, brandishing a gun that he aimed at the head of the border guard," a police spokeswoman said.

"Another border guard who was nearby opened fire killing the Palestinian," she added.

The police spokeswoman said bomb disposal experts later discovered that the "pistol was a toy made of metal."

Clashes erupted after Salayma's death, and continued on Thursday morning, with health officials saying 25 people suffered tear gas inhalation and three were wounded by rubber bullets fired by Israeli troops.

The Israeli military confirmed clashes had erupted earlier in the day.

"This morning, some Palestinians were throwing rocks and the army dispersed them with riot dispersal means," a spokesman told AFP.

Salayma's funeral was attended by around 2,000 people, an AFP correspondent said, but there were no reports of violence.

Salayma's uncle, Nasser, told AFP that the Israeli version of his nephew's death was "a fabrication."

"The plastic gun story isn't true and it is all fabrication," he said. Other relatives said Salayma was on his way to buy a birthday cake when the incident took place.

"Yesterday was his birthday and he celebrated it at school and was going to celebrate at home, but it never happened," Nasser al-Salayma said.

The Palestinian Centre for Human Rights said its preliminary investigations showed Israeli forces "at the checkpoint were detaining a child, who had a plastic pistol" as Salayma approached.

When he reached the checkpoint, an Israeli border policewoman "fired at him from a close range... he was hit by three bullets," the group said.

Shortly after the incident, Palestinian activists identified the border policewoman, posting pictures of her on social media networks.

Israeli activists also posted pictures of the woman, praising her actions, and she told the Jerusalem Post daily she had no qualms about the incident.

"For me it was a real pistol in every sense of the word pointed at my soldier and it's my responsibility to act, because if I don't kill him my friend will be killed, and I won't let this happen," she told the Post.

"I'm happy this ended with no injuries on our side and I'm sure any other officer in my situation would have done what I did," she added.

In July 2007, Israeli forces shot at two Palestinians apparently carrying weapons, killing one. They later discovered the man killed in the incident was holding a fake M-16.

There have been multiple attacks against soldiers in Hebron, one of the tensest cities in the West Bank, where a group of rightwing Israeli settlers lives in a heavily guarded enclave inside the Palestinian city.