The shooting occurred near the Israeli West Bank settlement, Har Gilo. Gunmen opened fire on the woman's car, as she drove the outskirts of Jerusalem.
A local branch of the Al Aqsa Martyrs Brigades claimed responsibility for the shooting, which left the woman in serious condition. Her 9-year-old daughter was hospitalized with what Israel radio called "moderate" wounds. Two other children are said to have received minor injuries.
It was the first attack on Israelis since Bethlehem was returned to Palestinian control last month.
Al Aqsa is an offshoot of Palestinian leader Yasser Arafat's mainstream Fatah movement. A month ago, they joined with the militant groups Hamas and Islamic Jihad in declaring a three-month suspension of attacks on Israelis. Still, some local al Aqsa organizations have refused to recognize the cease-fire.