The two were arrested by the federal-state Joint Counter-Terrorism Team in the western suburb of Bankstown yesterday, New South Wales state Deputy Police Commissioner Catherine Burn said, as Australia marked the 14th anniversary of extremist bombings in Indonesia that killed 202, including 88 Australians.
Burn said police had been concerned about the pair for some time and that the boys had potentially been radicalized by peers.
The pair had bought "two bayonet-type knives" from a Bankstown gun shop then caught a bus to the street near a Muslim prayer hall where they were arrested, Burn said. Police did not know their intended target, but an attack was imminent, she said.
They faced a potential life sentence if convicted of the planning charge and 10 years for being an Islamic State group member.
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The pair were denied bail when they appeared in the Parramatta Children's Court. They did not enter pleas and will remain in custody until their next court appearance on December 7.
State police headquarters in western Sydney was renamed the Curtis Cheng Center two weeks ago in honor of a civilian employee who was fatally shot as he left the building a year ago by a 15-year-old extremist.
"The threat is real, it's enduring, it's still happening and the age of these two individuals is extremely concerning to us," he added.