An unknown assailant killed the two Israelis when he opened fire on a car near the Jewish settlement of Otniel, south of Hebron in the occupied West Bank, the army said.
Another two Israelis were wounded, hospital sources said.
"Two Israelis were murdered... When shots were fired at their vehicle near Hebron" in a "terrorist" attack, an army statement said, adding that the gunman fled the area.
It was the most serious attack on Israelis in nearly a month and sparked a manhunt, with soldiers backed by air units deploying en masse in the neighbouring Palestinian communities of Yatta and As Samou, an AFP journalist said.
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"We will get to these heinous murderers and we will bring them to justice as we have done in the past," he said in a statement.
Israeli forces took less than a week to arrest the alleged perpetrators of an attack that killed two settlers on 1 October and sparked the latest wave of violence.
Israel says they belonged to a Hamas cell, the Islamist movement that is a staunch enemy of the Jewish state.
In an unrelated incident, a Palestinian was shot dead during clashes on Friday with the army in Hebron, Palestinian medics said.
Soldiers also shot dead a man near the West Bank city of Ramallah on Friday, the Palestinian health ministry said.
A statement announced "the death of a young man, Lafi Yusuf Awad, 22 years old, from the village of Budrus in the district of Ramallah, (killed) by a bullet from Israeli forces".
Earlier, a Palestinian teenager in Hebron succumbed to his wounds after being shot by troops a day earlier.
More than 200 Palestinians were treated during clashes on Friday, the Palestinian Red Crescent said, the majority after inhaling tear gas.
Many of the Palestinians killed were alleged attackers shot at the scene, while others died in clashes.