Aljazeera's correspondent said the activists, both from Hamas' military wing, the Izz al-Din al-Qassam Brigades, were killed near the Karni crossing, east of Gaza.
The soldiers spotted the pair armed with an anti-tank rocket launcher approaching from the road connecting Karni, an entrance point between Israel and the Gaza Strip, and Netzarim.
The troops shot and killed the men and later found three rockets as well as automatic weapons near the bodies, Israeli military sources said.
The movement confirmed that Tariq Subhi Tamraz, 21, and Husam Ahmad Hammad, 22, had been on their way to commit an attack on a "convoy carrying Zionist usurpers".
The latest deaths bring the overall toll to 4098 since the Palestinian intifada to throw off Israeli occupation began in September 2000, including 3107 Palestinians and 920 Israelis.
Netzarim is one of a group of four settlements which Israeli Prime Minister Ariel Sharon wants to dismantle in the initial phase of a wider withdrawal plan from Gaza.
But he was forced on Sunday to delay a vote on his proposals for a week after failing to garner support among a majority of his Cabinet.
Return to Rafah
In another incident, a Palestinian was wounded in the leg by Israeli army gunfire in the Diyar al-Balah area of southern Gaza as he approached a fence surrounding another Jewish settlement in the area, Israeli sources said.
Raids have destroyed hundreds
of Palestinian homes in Rafah
Further south, Palestinian security sources said that around 20 armoured vehicles had been seen entering the town of Rafah, destroying several houses.
Rafah was the scene of a massive Israeli operation last month in which more than 40 Palestinians were killed and up to 2000 made homeless after a rampage of house demolitions.
Police under arrest
Nine Israeli border police are being investigated for beating and stealing money from Palestinians near the West Bank city of Jenin, the Justice Ministry said on Wednesday.
The arrests of the nine paramilitary police were announced just a day after a Justice Ministry official said three other officers from the same unit were arrested for beating, clubbing, kicking and humiliating two Palestinian teenagers.
Israeli border police abused and
clubbed Palestinian youths
The nine policemen were arrested earlier this week by the Justice Ministry's internal affairs department - responsible for investigating police matters - after they received information that the officers would beat, abuse and attack Palestinians while looking for illegal workers.
Most of the alleged crimes were committed in Baka al-Gharbia, a Palestinian town along the Israel-West Bank border, Israel Radio reported.
The nine men are also suspected of stealing money and possessions from Palestinians, a Justice Ministry official, who spoke on condition of anonymity, said.
The officers confessed and were released to house arrest.