Shira Banki, 16, was one of six people attacked at the event on Thursday.
Yishai Schlissel, an ultra-Orthodox Jew, who carried out a similar attack in 2005, was arrested at the scene.
Israel’s government would have “zero tolerance” for Jewish extremists, Prime Minister Benjamin Netanyahu said at a security cabinet meeting on Sunday.
His comments also followed a separate attack in which an 18-month old Palestinian child died when his West Bank home was firebombed by suspected Jewish settlers.
The cabinet approved new measures to tackle ultra-nationalist violence against Palestinians, including detention without trial of Israelis.
The policy of detention without trial has long been used against Palestinians, but observers believe it has rarely been used against Israelis.
No arrests have been made so far in the case.