The incident occurred at a junction midway between Ramallah and Nablus in the Israeli-occupied territory, and soldiers "fired toward the vehicle in order to prevent the suspect's escape, confirming a hit," Colonel Peter Lerner said.
The car, with an Israeli license plate, could be seen overturned at the scene.
Palestinian security officials named the driver as Mohammed Badwan, a Palestinian from Biddu village east of Ramallah, and said Israeli forces later searched his home.
Prime Minister Benjamin Netanyahu described the man as a "terrorist" and praised the army for its quick reaction.
An army statement said two of the three wounded soldiers "sustained severe injuries."
The third was shown on publicly-owned Channel One television, sitting up in a hospital bed, with bandaged arms.
Media said the driver was taken to a Jerusalem hospital in serious condition.
The Islamic militant group Hamas did not take responsibility for the attack but praised it as an "appropriate response" to Israel's occupation of Palestinian territories.
Netanyahu said on Twitter: "I'd like to praise the action of the (Israeli) soldiers, who reacted quickly and neutralised the terrorist."
And Defence Minister Moshe Yaalon said: "In the struggle against Palestinian terrorism we need determination and an iron fist against the terrorists and their despatchers."
Palestinian assailants last year carried out a series of car attacks -- some of them fatal -- against Israelis in the West Bank and Jerusalem.
AFP
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