A Jerusalem court did not identify the convicted murderers because they are minors.
The two were convicted of burning and killing 16-year-old Mohammed Abu Khdeir in July 2014.
A third Israeli -- an adult named Yosef Haim Ben-David -- was also found responsible, but his judgment was temporarily suspended. The court held off announcing a verdict for Ben-David because his legal team filed a last-minute psychiatric submission claiming he was not mentally responsible for his actions.
Ben-David had failed to speak in court to defend himself throughout the proceedings.
Public prosecutor Uri Korb described the crime as barbaric.
"The court has today ruled that the three accused had carried out ... the barbaric crime of kidnapping an innocent person, only because of his origin, and burned him to death," Korb said.
Mohammed was abducted, beaten on the head and burned alive after the killings of three Israeli teens a week earlier.
His death sparked weeks of angry protests by Palestinians outraged by the apparent revenge killing.
Mohammed's father expressed anger about how long it took to reach a decision.
"This is all a lie to the court and to us," Hussein Abu Khdeir said. "I am afraid that the court will let them go in the end."
On December 20, the court is set to meet to discuss whether to admit the psychological evaluation of Ben-David.
Separately, a court procedure mandates that a social worker examine the minors to ensure there are no mitigating circumstances -- a standard procedure in cases relating to minors -- before the court issues a formal conviction.
The court will convene in January to discuss punishment for the Israeli teenagers.