The IDF intensified its hunt on Thursday night for the ax-wielding terrorist who infiltrated the Bat Ayin settlement earlier in the day - killing Shlomo Nativ, 13, and fracturing the skull of Yair Gamliel, seven - even as its forces were on high alert for fear of retaliation by settlers.

The attack came less than 48 hours after Prime Minister Binyamin Netanyahu took office with a right-wing government that has promised to take a harsher stance against Palestinian violence.

Gush Etzion Regional Council head Shaul Goldstein told The Jerusalem Post he believed the terrorist was deliberately testing the prime minister.

"That was his purpose," Goldstein said, adding that Netanyahu would be evaluated by both Israelis and Palestinians based on his response.

Netanyahu issued a statement saying he viewed the attack with "utmost gravity," and directing the security services to take all steps necessary to apprehend the murderer.

Less than an hour after the attack, Islamic Jihad claimed responsibility. Another terrorist group calling itself the Martyrs of Imad Mughniyeh also claimed credit for the attack in an e-mail sent to The Associated Press.

By evening, the IDF said it had a "lead" in the search for the killer. Helicopters were deployed to assist in the search.

"We will do our best to find him and put him where he belongs," Etzion Brigade deputy commander Lt.-Col. Guy Oshrey said. "We have a lead, and according to our assessment, he will be apprehended soon."

Following the attack, large IDF forces swept into the Bat Ayin area and began searching for the ax-wielder, who had fled into a nearby Palestinian town.

Thursday's attack was the second the settlement has endured; another of its residents, musician Erez Levanon, 42, was fatally stabbed by two Palestinian teenagers as he prayed outside Bat Ayin two years ago.

By Thursday afternoon, roadblocks had been set up throughout the area, and the IDF was prepared for the possibility of a revenge attack by settlers.

"There is concern that settlers will try to exact a price from the Palestinians in response to the attack," an IDF source said, adding that the military would maintain its high alert over the weekend.

Bat Ayin is home to 150 families who are an eclectic mix of spiritual and ultra-religious settlers. But it has also made headlines because some of its members have belonged to a Jewish terrorist cell.

Gamliel, who was rushed to Hadassah University Hospital in Jerusalem's Ein Kerem in moderate condition with a fractured skull, is the son of Ofer Gamliel - one of three men convicted in 2003 and sent to prison for 15 years for a failed bomb plot against an Arab girls' school in east Jerusalem.

On Thursday afternoon, Yair Gamliel and Nativ were near the local council building, where children often play, when a terrorist approached them.

He was able to enter the settlement with ease because it lacks its own security fence, unlike most other settlements in Judea and Samaria. Bat Ayin residents did not want such a fence, because they believe they should be able to live in safety without it and that other security measures can suffice.

The terrorist hit both Nativ and Gamliel on the head. Shlomo managed to get to his home, located right across the street, and then died.

Yair Wolf, the deputy head of the Gush Etzion Regional Council, said Nativ's parents, Haim and Revital, were away shopping for Pessah, but that some of his siblings were home.

One of Nativ's brothers tried in vain to revive him by pressing on his chest.

Gamliel ran in the opposite direction, and rounded the corner of the council building as the terrorist raced after him, still holding the ax.

Bat Ayin resident Avinoam Maimon, who happened to come to the local council building to try to pay a bill, saw the terrorist and fought with him.

He eventually wrested the ax from the terrorist, who then fled.

Just about that time, one of Nativ's brothers came out of a carpentry shop with a friend and saw what was going on, said Shlomo Vaknin, who is charge of security for the Council of Jewish Communities of Judea, Samaria and the Gaza Strip.

The brother had a gun and shot in the air, while his friend ran after the attacker, but failed to catch him.

Security forces have opened an investigation into how the terrorist entered the settlement.

Defense officials said it was possible that had there been a fence, the Palestinian would not have been able to carry out the attack.

But Goldstein said the problem was the budget cuts to the Judea and Samaria Police District, which had kept them from effectively securing the area with radar and better cameras.

Hamas called the attack a natural response to the "occupation."

"This attack was committed in the framework of the resistance," said Ayman Taha, a spokesman for the group. "This is a reaction to the continuing occupation and the continued building of settlements. This is a natural reaction, especially against the backdrop of Israeli attacks. We are a people occupied, and it is our right to defend ourselves and to act in every way and with every means at our disposal to defend ourselves," Taha said.

As the sun set on Thursday, shocked and tearful members of the Bat Ayin community gathered by the Nativ home.

Across the street, children sat on the ping-pong tables and spoke quietly of the attack. Men stood and prayed the afternoon service. One woman, overcome with grief, groaned and banged her head on the wall.

The family has lived in Bat Ayin for 20 years and was among the founders of the community.

Some five hours after the freckled, ever-smiling Shlomo, the eighth in a family of nine children, left his home to cross the street, his family brought his corpse out on an orange stretcher, wrapped in a prayer shawl.

Using a megaphone to address the crowd, one of the mourners said that in the month of Nisan it is not permitted to deliver eulogies.

"Anyway," he said, "words fails us."

Friends, family and neighbors then accompanied the body to the nearby cemetery.

Herb Keinon and AP contributed to this report.