Worshippers coming for the first prayers of the day found the damage and a still-smouldering fire, which spewed black smoke across the entrance of the Abu Bakr Al-Siddiq Mosque in the town of Tell, near Nablus, and stained the ornate doorway.
"I was shocked when I opened the door," said Munir Ramdan, who lives near the mosque.
"The fire had been burning here in the area, the glass was broken here, and the door was broken."
Security camera footage shows two people walking towards the mosque carrying petrol and a can of spray paint, and running away a few minutes later, Ramdan said.
The Religious Affairs Ministry said that settlers had allegedly vandalised or attacked 45 mosques in the West Bank last year.
The incident came as Muslims observe the holy month of Ramadan.
"The provocation is directed especially at the person who is fasting, because you are fasting and entering a month of mercy and forgiveness from God," said Salem Ishtayeh, a resident of Tell.
"So they like to provoke you with words — it's not that they are attacking you personally, they are attacking your religion, the Islamic faith."
The Israeli military and police said that they responded to the incident and were searching for suspects.
The military said that it "strongly condemns" harm done to religious institutions.
Palestinians and rights groups say that Israeli authorities routinely fail to prosecute settlers or hold them accountable for violence.
There has been a recent surge in violence from settlers against Palestinians in the West Bank.
Last week, settlers killed a 19-year-old Palestinian-American man, Nasrallah Abu Siyam.
