Israeli settlers have set fire to a Palestinian house in the village of Sinjil in the occupied West Bank to avenge the death of an Israeli soldier, who was stabbed the day before by a Palestinian youth.

The attackers sprayed the message "Regards from Eden, Revenge" on an outside wall of the house. The reference is to Eden Attias, the 19-year-old soldier who was stabbed to death on a bus in the Israeli city of Afula allegedly by a 16-year-old Palestinian from Jenin.

Five Palestinian children living in the house suffered from smoke inhalation and were brought to the hospital for treatment.

Four or five settlers carried out the attack overnight, breaking windows and pouring petrol on the patio.

"Suddenly there was fire everywhere, spilling into the kitchen," Ruwaida Dar Khalil, the mother of the household told Reuters. "We were terrified. We took our young children to hospital after they breathed in the smoke. Thank God they are all right."

A number of suspects are already investigated by local Israeli police.

Earlier this year, extremists defaced with anti-Christian graffiti Jerusalem's Dormition Abbey. Vandals spray-painted hate slogans such as "Christians are monkeys" and "Christians are slaves" and "Havat Maon" referring to a settler colony in the West Bank.

The Israeli cabinet is to discuss a new policy to label the so-called "price tag" attacks led by Jewish settlers as acts of terrorism.