Nadeem Nuwarah, 17, was killed on May 15 during a day of clashes in Beitunia, southwest of Ramallah, between Israeli forces and Palestinian protesters marking the anniversary of the Nakba, or "catastrophe" of the 1948 creation of Israel.
Footage recorded by US broadcaster CNN captured a group of five or six border police officers in the area, one of whom could be seen firing at the time when the youth was hit.
A post-mortem found he died after being hit in the chest by a live bullet, an Israeli human rights group said.
At the time, Israel said border police were quelling a violent demonstration by about 150 Palestinians, and denied live bullets were used.
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Benny Katz, the lawyer representing the suspect, whose identity has not been revealed, told army radio his client denied the charges against him.
"This arrest is superfluous, my client denies firing live bullets," Benny Katz told army radio.
The border policeman was arrested following a probe by the justice ministry department which looks into complaints of police conduct.
Palestinian leaders accused Israel of Nuwarah's "deliberate execution" at the time, after CCTV footage appeared to show Nuwarah was shot unprovoked, during a lull in the violence.
A second teenager, Mohammed Udeh, 16, was killed on the same day in the same place. He was also hit in the chest by a bullet but his family refused to allow a post-mortem.