The move came after Prime Minister Benjamin Netanyahu announced he would seek broad powers to rescind the residency and welfare rights of any Palestinian resident of Israel or annexed east Jerusalem if they or their relatives participated in unrest.
"I have ordered the cancellation of Nadia Abu Jamal's permit to stay in Israel. Anyone who is involved in terror must take into account that there are likely to be implications for their family members too," Interior Minister Gilad Erdan said in a statement.
Cousins Uday and Ghassan Abu Jamal, from the east Jerusalem neighbourhood of Jabel Mukaber, killed five people at a synagogue on November 18 before being shot dead by police, in the city's bloodiest attack in six years.
It was unclear from the statement whether Nadia was the widow of Uday or of Ghassan.
The statement said she had been granted east Jerusalem residency under a "family reunification" clause allowing residents of the Palestinian territories to stay with spouses who hold either Israeli citizenship or permanent residency.
Palestinians in east Jerusalem have residency rights but not citizenship.
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Israel has introduced a series of measures against the families of Palestinians involved in attacks in Jerusalem, including demolition of their homes, policies that human rights watchdogs have condemned as collective punishment.
Israeli rights group B'Tselem slammed the decision to revoke Abu Jamal's residency permit.
"We object to this measure. It's abuse of a minister's authority and a form of collective punishment," spokeswoman Sarit Michaeli told AFP.
"She isn't accused of any harm, and the revoking of her residency status will actually mean she will be banished from her home and thrown out of the city she lives in.
"Residency and social benefits... aren't gifts or favours the authorities bestow and can then take away. They're essential aspects of people's existence," Michaeli said.
On Sunday, Israel revoked the residency of a Palestinian convicted of driving a suicide bomber to a Tel Aviv nightclub where he killed 21 people in 2001.
Mahmud Nadi had served a 10 year prison sentence for his part in the bombing.