The Settlement Regularization Law allows Israel to "legalize" settlements built on privately-owned Palestinian land via de facto expropriation.
Much of the worldwide community views the settlements as illegal and an obstacle to peace.
Losing significant funding from its largest donor, the United States, could be "catastrophic" for Palestinians, said a UN agency that provides aid to Palestinian refugees.
Abu Musaed and Kino were the third Palestinians to have been killed by Israeli since the beginning of the year.
Palestinian officials are calling President Trump's threat to cut financial aid over failed peace talks "blackmail".
Since the 1993 Oslo Accords, the US has been among the major donors to the Palestinian Authority (PA), created to manage limited self-governance in parts of the West Bank and the Gaza Strip.
On Monday, British Foreign Minister Boris Johnson reiterated "the UK's commitment to supporting the Palestinian people and the two-state solution, the urgent need for renewed peace negotiations, and the UK's clear and longstanding position on the status of Jerusalem".
"According to global law, Jerusalem is an occupied land", he said.
Dozens of Palestinians suffered from tear severe tear gas inhalation after Israeli forces suppressed the protest, which was held in support of Ahed and in rejection of US President Donald Trump's recognition of Jerusalem as the capital of Israel.
Relations between the Palestinians and Washington soured last month after Trump announced the U.S. would recognize Jerusalem as Israel's capital, generating outrage across the Arab world and concern among Washington's Western allies. "(Trump) is saying the time has come to stop saying flattering words (to the Palestinians)".
President Trump made the Jerusalem declaration back in early December, and immediately sparked large protests worldwide, along with rejections from virtually every country in the world.