In short NO. The longer answer is that while many things are not allowed, in a conflict zone, like in all wars, soldiers and other participants sometimes do things that are not allowed. In the cases where the (Israeli) authorities learn about it, they prosecute the offenders to the full extent of the law, just like other Western democracies treat violations in a time of war.
Most of the sources I'll present will be in Hebrew, and I'll try to give a translation of what I consider to be the most important parts.
On the site of the peace organisation Hamoked given the story of Shlomo Adir, a settler from Ptzael who shot a Palestinian worker to death:
At that time Shlomo Adir, the guard of Ptzael, noticed two [Palestinian] workers in the field and suspected them to be thieves... Adir entered the area of the greenhouses and called them to stop with a loudspeaker, stepped out of the car, loaded his weapon and shot approximately 10 shots at the air, immediately after he saw one of the workers next to him and shot three bullets at his upper body from close range resulting in his immediate death.
In March 2008, Adir was convicted in a court in negligent manslaughter and was sentenced for 200 hours of community service, conditioned incarceration and compensation to the victim's family of 25,000 NIS. The judge ruled that Adir opened fire too quickly and in a negligent matter. Appeals that Adir filed in higher courts and the Supreme court were rejected.
On the 25/11/2010, 7.5 years after the deadly and unnecessary shooting, an agreement was reached in court saying that the shooter and the settlement Ptzael would pay 763,670 NIS to the victims family as compensation.
Here are some links to occurrences where Israeli military personal were charged for killing Palestinians:
Border police officer who shot a Palestinian boy charged with negligent manslaughter (in English)
Lieutenant colonel is charged with negligent manslaughter in Jenin (in Hebrew)
There are many more examples. The Hebrew Wikipedia has an article about Jewish terrorism and in it a section of Jewish terrorism against Arabs. All of the people performing such acts who survived them were prosecuted and sentenced.
Another act is the act of price tag where settlers go and hurt Arab property as a "price tag" for an action of the Israeli government against them. Those acts are also dealt with by the law authorities.
So the answer to your first question is no. Neither settlers nor anybody else can go around shooting or hurting Palestinians and Arabs without consequences.
As to your second question, it's possible that what Michael Tarazi describes happened to him, but, if it happened it was the act of rogue soldiers. If the authorities learned about it they dealt with the offenders, and Tarazi can follow legal actions against the perpetrators and the state of Israel for compensation.