It happened at the time of a deadly attack by an Israeli Arab, at the same place, in Beersheba. He was shot dead.
Israel has seen a wave of stabbings and shootings by Palestinians this month.
Eight Israelis have been killed and dozens wounded in the attacks. More than 40 Palestinians, including several of the attackers, have also been killed in the growing unrest.
The upsurge in violence began last month when tensions at a flashpoint holy site in Jerusalem revered by Jews and Muslims boiled over amid rumours Israel planned to relax long-standing rules to strengthen Jewish rights at the complex. Israel has repeatedly denied such claims.
Mr Mulu was shot by a security guard, apparently while it was thought the bus station was under attack by two assailants.
Mobile phone footage shows an angry crowd surrounding Mr Mulu as he is lying injured on the floor, under a stool held over him by a member of security.
A set of chairs is dumped on his head before he is kicked by at least two people.
Mr Mulu was taken to hospital, where he died late on Sunday.
Israeli police spokeswoman Luba Samri said officers were working to arrest those who "aggressively beat" and kicked Mr Mulu "while he lay on the floor and posed no threat,", the Associated Press reported.
Mr Mulu worked at a plant nursery and was in Beersheba to renew his visa, his employer told Israel`s Army Radio, AP said.
A man who said he took part in the beating told Army Radio he did not realise Mr Mulu was not an attacker, the Times of Israel newspaper reported.
"I saw people coming and crowding around him, I understood from them that this was the terrorist," said the man, identified as Dudu.
"If I had known that this wasn`t the terrorist I would have protected him like I protect myself," he said. "In a moment of fear and pressure, you do things you`re not conscious of whatsoever."
Commenting on what happened, Israeli Foreign Ministry spokesman Emmanuel Nahshon said: "It`s terrible. It shows you what a terrible situation we are in."
The assault on Mr Mulu happened amid pandemonium after an Israeli Arab Bedouin from nearby Hula opened fire and stabbed people at the bus station, killing 19-year-old Sgt Omri Levy.
The attacker, identified as 21-year-old Mohannad al-Okbi, snatched Sgt Levy`s gun and continued shooting, injuring 10 people, before he was shot dead.
It was the latest in a wave of attacks on Israelis across the country and in Jerusalem, putting Israel on heightened security alert.
Extra troops have been deployed on the streets and police in Jerusalem have erected a concrete barrier between the Palestinian district of Jabal Mukaber, where three attackers have come from, and the neighbouring Jewish settlement of East Talpiot, also known as Armon Hanatziv.
US Secretary of State John Kerry is expected to meet Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas separately this week to try to find ways to calm the spiralling tension.
There has been a spate of stabbings of Israelis and some shootings - several of them fatal - by Palestinians since early October, and one apparent revenge stabbing by an Israeli. The attackers have struck in Jerusalem and across Israel, and in the occupied West Bank. Israel has tightened security and its security forces have clashed with rioting Palestinians, leading to deaths on the Palestinian side. The violence has also spread to the border with Gaza.
After a period of relative quiet, violence between the two communities has spiralled since clashes erupted at a flashpoint Jerusalem holy site in mid-September. It was fuelled by rumours among Palestinians that Israel was attempting to alter a long-standing religious arrangement governing the site. Israel repeatedly dismissed the rumours as incitement. Soon afterwards, two Israelis were shot dead by Palestinians in the West Bank and the stabbing attacks began. Both Israel and the Palestinian authorities have accused one another of doing nothing to protect each other`s communities.
There have been two organised uprisings by Palestinians against Israeli occupation, in the 1980s and early 2000s. With peace talks moribund, some observers have questioned whether we are now seeing a third. The stabbing attacks seem to be opportunistic and although they have been praised by militant groups, Palestinian leader Mahmoud Abbas has said Palestinians are not interested in a further escalation.
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