The overnight demolitions took place in Qalandia refugee camp, between Jerusalem and Ramallah, with four Palestinians wounded in ensuing clashes, an AFP reporter said.
A military spokeswoman said the military razed the homes of Issa Assaf and Annan Abu Habsa, who were shot dead during a December 23 attack near Jerusalem's Old City.
"Armed with knives, the two assailants stabbed pedestrians at the scene, brutally killing rabbi Reuven Birmajer and wounding a civilian," the spokeswoman said.
In addition, Ofer Ben Ari was killed" by security forces who shot the two Palestinians.
"During the demolition, multiple violent riots erupted," with Palestinians throwing rocks and opening fire, the spokeswoman said.
Israeli forces eventually opened fire at "main instigators," she said.
Four Palestinians were lightly wounded in the clashes, according to an AFP reporter.
Israel routinely demolishes homes of Palestinian assailants in what it says is a means to deter further attacks.
Rights groups say it amounts to collective punishment, with families forced to suffer for the acts of relatives.
"They came in and told us they're going to demolish the houses," Abu Habsa's father, Mohammad, told AFP as he stood by the rubble.
"I don't know what they will gain from this."
A wave of violence since October has killed at least 214 Palestinians, 34 Israelis, two Americans, an Eritrean and a Sudanese.
Most of the Palestinians killed were carrying out knife, gun or car-ramming attacks, Israeli authorities say.
The parents of Palestinian assailant Essa Assaf inspect their family house it was partially destroyed by Israeli troops on Monday, in Qalandia refugee camp near the West Bank city of Ramallah.
Israeli forces demolished the West Bank homes of two Palestinian knifemen whose December attack led to the death of two Israelis, including one by friendly fire, the army said Monday.
