Israel Defence Forces (IDF) stormed into a West Bank hideout early today and killed the two Palestinian suspects in an exchange of fire, the army said.
"Both the suspects were killed in an Israeli operation," IDF spokesman Peter Lerner said.
It was later confirmed by Hamas, which had initially denied responsibility for the abduction and murder of the Israeli teenagers, though later accepted its role in funding and executing the killings.
The house was surrounded by the Israeli forces before dawn, security sources said, adding the suspects had automatic weapons and were killed "in an exchange of fire".
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Three additional people suspected of involvement in the kidnapping, all from the Qawasmeh family, were arrested during the operation.
Lerner told reporters that there was a breakthrough in the search a week ago that led security forces to the hideout.
Israeli forces had earlier demolished the homes of the suspects in August and arrested Hussam Qawasmeh, Marwan's uncle, in September for organising and funding the abductions.
Israeli forces launched a massive search operation in Gaza strip, rounding up hundreds of suspected Hamas affiliates in the door-to-door search operations that significantly escalated tensions between the two.
The dead bodies of the three teenagers were later found on July 1.
The killings sparked a chain of violent events, including the suspected revenge killing of a Palestinian youth in Jerusalem and helped trigger the seven-week long conflict between Israel and Hamas controlled Gaza strip that killed more than 2,100 people, mostly Palestinians, and displaced thousands more.
Notably, the killings of suspects came as Israeli and Palestinian delegations were to negotiate in Cairo a more permanent Gaza ceasefire.