The home where the 18-month-old boy and his family were sleeping was set on fire in the village of Douma near Nablus, local officials say.
The parents and the child’s older brother were severely injured.
The attackers apparently left graffiti near the house reading “revenge” in Hebrew.
Eyewitnesses say the house was firebombed. The father was able to rescue his wife and the older son, but not the toddler.
Another house was also damaged by the fire.
“This is a suspected attack with nationalist motives,” Israeli police spokeswoman Luba Samri said.
In a statement, the Israel Defense Forces (IDF) said: “The preliminary investigation suggests that suspects entered the village in the early hours of the morning, set the homes ablaze and sprayed graffiti in Hebrew on the homes.”
“IDF forces are currently operating in order to locate the suspects of this attack.”