However, the army does not dispute that white phosphorous was used in Gaza and has submitted its report to the UN.
Many human rights organisations had accused the Israeli army of illegally using phosphorous munitions, which caused severe burned injuries among the Palestinian population.
However, the Israeli army justified its actions by saying that similar shells were in use by other Western armies and that the munitions were used in remote locations in the Gaza Strip.
Al Jazeera's Jacky Rowland reporting from Jerusalem, said: "We must stress that the Israeli army is investigating itself. This is not in anyway an independent inquiry.
"When you bear in mind that a number of human rights groups identified what they described as a systematic, random and wide-ranging use of the chemical, the Israeli report just focuses on this one incident and two individuals being disciplined.
"But we have seen pictures from Gaza that hundreds of people were burned by white phosphorus during that military campaign a year ago. It seems that just this one isolated incident is being focused on in the Israeli investigation."
The development comes as a deadline looms for Ban Ki-moon, the UN secretary-general, to address the General Assembly with his own report on Gaza.
The occupied Palestinian territory has a high population density and limited land access.
With the conclusion of the Gaza offensive, dubbed Operation Cast Lead, Gabi Ashkenazi, the Israeli army chief, ordered the convening of five special investigative committees, Israel's report to the UN said.
One of the committees examined the use of phosphorus shells.
The members noted in their findings that the two army officers, in approving the firing of phosphorus shells, were guilty of "exceeding their authority in a manner that jeopardised the lives of others".
Gideon Levy, a Haaretz political analyst, told Al Jazeera: "This is the first time that Israel has admitted it did something wrong. This by itself is a progressive step.
"Without international pressure, the [Israeli army] would have not carried out investigations, but I guess the world will not be satisifed with this very minor step."
The Goldstone report, requested by the Geneva-based UN Human Rights Council, was put together by an expert panel headed by Richard Goldstone, a South African jurist.
Based on its findings in Gaza, the committee accused both Israel and Palestinian fighters of committing war crimes during the Gaza war, which lasted from December 27, 2008, to January 18, 2009.
Initially, Israel refused to co-operate with Goldstone and angrily rejected his findings.
But after the General Assembly urged in November both Israel and the Palestinians to investigate Goldstone's charges, Israel decided it would provide Ban with information on the Gaza offensive.
Yigal Palmor, the Israeli foreign ministry spokesman, said the country's response, defends Israel's investigations of its offensive, but does not address the international body's main demand - the creation of an independent commission of inquiry.
"The decision to establish a commission of inquiry must be made by Benjamin Netanyahu, the Israeli prime minister, he said.
Israel's report to the UN says that the convening of a sixth committee has been set up to examine additional allegations made against the Israeli army.
So far, Israel's military says, it has investigated about 150 incidents that took place during the fighting.
At least 29 investigations are ongoing, the military said, and one soldier has been convicted of misconduct.