Ghassan Douglass, a Palestinian official in charge of settlement activity north of the West Bank, said the family had received news of Saad Dawabsheh's death on Saturday morning.
A "price tag" attack is a term used by radical Israeli settlers to denote reprisal against Palestinians in response to moves by the Israeli government to evacuate illegal West Bank outposts, according to officials.
Amid wide anger over the attack, Palestinians flocked from across the region to march with Dawabsheh's body as it was carried -- wrapped in a Palestinian flag -- through the village of Duma, south of Nablus, where the family's home was attacked.
Many chanted and waved flags in support of Hamas, the militant group that runs Gaza, Palestinian political party Fatah, and other groups.
Dawabsheh was laid to rest in Duma's cemetery in a grave next to that of his 18-month-old son, Ali Saad Dawabsheh, who died in the July 31 attack by suspected Jewish extremists.
Dawabsheh was receiving treatment for his burns at Soroka hospital in southern Israel. His body was transferred to Nablus hospital to undergo an autopsy before his burial.
His wife, Riham Dawabsheh, and the couple's 4-year-old son Ahmad Dawabsheh remain in critical condition with burns over 80% of their bodies, according to Douglass and other family members.
Both Israelis and Palestinians described it as a terrorist attack, but the latter blamed Israel.
Call to tackle Jewish extremism
Speaking to CNN in Duma, Mustafa Barghouti, a member of the executive committee of the Palestine Liberation Organization and general secretary of the Palestine Initiative, lamented the deaths of Saad Dawabsheh and his son.
He condemned the arson attack as "the worst form of terrorism practiced by the terrorist settlers," and accused Israeli Prime Minister Benjamin Netanyahu and his government of defending them.
"Condemnation will do nothing," he said. "The only way to stop this is to tell Israel and Netanyahu's government they will be punished for similar crimes if they are committed again. They have to be told that they should remove the illegal settlers from the occupied territories."
Ahmed Tibi, an Arab member of the Israeli Parliament, the Knesset, also accused Netanyahu's government of fostering an atmosphere of support for settlements and failing to take on Jewish extremists who carry out attacks.
Fifteen Palestinian houses have already been burned down, he said. "Palestinians are not only under occupation, they are attacked almost daily by these groups," he said.
Israeli settlements in the occupied West Bank and East Jerusalem are considered illegal under international law.
In the aftermath of the attack, Netanyahu said he was shocked and had ordered Israel's security forces to "use all means at their disposal to apprehend the murderers and bring them to justice."
'Heinous terrorist act'
The U.N. special coordinator for the Middle East Peace Process, Nickolay Mladenov, said he was deeply saddened to learn that Saad Dawabsheh had died and said his thoughts and prayers were with his 4-year-old son and wife as they fight for their lives in the hospital.
"I reiterate the Secretary-General (Ban Ki-moon)'s call for the perpetrators of this heinous terrorist act, which was universally condemned, to be brought swiftly to justice
," he said.
"Political, community and religious leaders on all sides should work together and not allow extremists to escalate the situation and take control of the political agenda."
A spokesman for Ban on Friday condemned recent violence in the occupied West Bank, East Jerusalem and Gaza.
According to his statement, this includes "numerous rockets" launched from Gaza toward Israel over the last few days; an incident near Shiloh that seriously injured two Israeli soldiers; a firebomb attack that injured an Israeli woman in east Jerusalem; the Duma attack and subsequent clashes; and "worrisome reports of provocations by settlers in Hebron."
Homes set ablaze
A spokeswoman for Israeli police, Luba Samri, said after the Duma attack that authorities found the words "price tag" written on the walls of the family's home.
A preliminary investigation indicated the suspects entered the village at night, set homes ablaze and sprayed graffiti on them.
A Palestinian teen also died last Saturday after he was shot by Israeli troops during clashes sparked by the toddler's killing.