Hebron, the traditional burial site of Abraham, the shared patriarch of both Jews and Muslims, is the only place where Jews live in the heart of a West Bank city. Arab-Israeli violence there dates back decades, and clashes are frequent.
About 850 settlers now live in Hebron in heavily guarded enclaves among 180,000 Palestinians. Hundreds of Israeli soldiers enforce a rigid separation between the two sides.
The settlers seized the home in an overnight raid last Thursday, claiming they had purchased it from a Palestinian landowner. But the military subsequently ordered them to leave the building because they had not received proper approval to live there.
After Netanyahu's call for a legal review of the matter on Tuesday, it appeared the evictions would be on hold. But government officials said Netanyahu's attorney general determined the home should be cleared out immediately.
Hundreds of police ringed the apartment building around midday on Wednesday. Settler leaders said about 70 people moved into the building last week. But only 15 or so, including children, were inside when the raid was launched, police spokesman Micky Rosenfeld said.
He said an eviction order was ripped up by one of the people inside, but otherwise there was no resistance.
Defense Minister Ehud Barak, who oversees the military occupation of the West Bank, promised to "continue to act to uphold the law and democracy while safeguarding the state's authority over its citizens."
Authorities were still investigating whether the house was legally purchased as the settlers claim, Barak said.
Barak heads a small, centrist faction in a government coalition that is otherwise dominated by hard-line parties sympathetic to Jewish settlers, who are intent on cementing Israel's control over the West Bank.
Foreign Minister Avigdor Lieberman, who heads the nationalist Yisrael Beitenu party, said the settler eviction "shakes the stability of the coalition."
Hebron settlers are among the most militant in the West Bank, territory they believe God promised to Jews.
After Wednesday's raid, one of the most militant settler leaders, Baruch Marzel, warned of retaliatory attacks.
"No one wants more violence," Marzel said, but added that "when the racist government that doesn't let the Jews buy a house in the land of Israel ... I think violence is a reaction to the racist government."
The raid came shortly after Netanyahu announced new moves to try to save unauthorized settler construction in the West Bank from demolition.
The prime minister said he asked the attorney general to find a way to save the unauthorized Ulpana outpost from its Supreme Court-ordered demolition. Five apartment buildings are to be razed by May 1.
Netanyahu said he also plans to supply the necessary approvals to legalize three other enclaves settlers built without government authorization.
About 500,000 Jews have moved to the West Bank and east Jerusalem since Israel captured the territories in the 1967 Mideast war.
Palestinians want both territories as the heart of their hoped-for state and see all settlement there as undercutting their aspirations to statehood. The international community opposes all settlement construction.
On Tuesday, Israel announced it was pushing forward with an earlier plan to build hundreds of new homes in a Jewish neighborhood in east Jerusalem.
A Construction Ministry spokesman said the latest move, seeking builders for the project, means that construction could start in the Har Homa neighborhood within a year.
Settlements in occupied territory have been the key sticking point since Netanyahu became prime minister three years ago.
Negotiations have been largely frozen during that time, though Netanyahu will hold a rare meeting with Palestinian Prime Minister Salam Fayyad after the Jewish Passover holiday ends in late April, officials on both sides said. U.S. Mideast envoy David Hale is in the region trying to get peace efforts back on track.
Palestinian officials said Fayyad would present a letter asking to resume peace talks based on several conditions Netanyahu has rejected in the past. They include basing border talks on lines Israel held before capturing the West Bank, east Jerusalem and the Gaza Strip in 1967 and recognizing east Jerusalem as the capital of a future Palestinian state.
Israel withdrew from Gaza in 2005 but still controls its land crossing with the territory and blockades its coast.
In other developments, the Israeli military shot dead a Palestinian man who approached Gaza's border with Israel overnight. The military said it suspected he was a militant. There was no word on the man's identity.