Palestinian security officials said the two were killed when the Israeli army opened fire late on Wednesday night.
Their bodies were handed over to Palestinian officials.
Earlier reports had spoken of three deaths, but the toll was
revised downwards by both sides.
The two killed were on their way home when their car came under fire, said a relative.
Israeli military sources said a group of four Palestinians, two of them armed, were seen in an area restricted for settlers and occupation soldiers preparing for an attack.
The latest deaths came even as the United States weighed two new alternative Middle East plans, while its own "peace road map" for the region virtually lay in tatters.
In an interview with European newspapers this week, US Secretary of State Colin Powell said the new peace attempts were "interesting."
One of the two initiatives has been drawn up by moderate Israeli and Palestinian politicians.
Known as the Geneva Initiative, it makes proposals on the future of Jerusalem as well as the West Bank settlements and the return of Palestinian refugees.
The other plan has been mooted by Palestinian activist Sari Nusseibeh and former head of Israeli intelligence Ami Ayalon.
But US State Department spokesman Richard Boucher said he had no plans to announce "at this point" on a possible meeting between Powell and the architects of the two initiatives.
"As you know, we welcome the efforts by various people, the Israelis, among Israelis and Palestinians to have a dialogue on some of the issues that these two communities face. But no, I don’t have anything on any particular meetings at this point," Boucher said.