The deceased were identified as 25-year-old Hussein al-Amour and 28-year-old Abdul Haleem al-Naqa, the Palestinian health ministry said.
An independent inquiry into the 2014 war in Gaza by the UN Human Rights Council concluded that "the tunnels were only used to conduct attacks directed at IDF (Israeli army) positions in Israel in the vicinity of the Green Line, which are legitimate military targets".
Israel's military confirmed that it targeted an observation post, calling the attack retaliation for a bomb that had been placed next to the border fence overnight.
The incident comes hours after the IDF struck several Hamas targets in a military compound in the southern Gaza Strip in response to an early infiltration by four Palestinians who damaged security infrastructure as well as to repeated attempts to damage security infrastructure during the violent protests along the border fence with Israel.
Tuesday's Gaza flotilla will coincide with the 8th anniversary of an Israeli attack on the Turkish "Mavi Marmara" flotilla, in which nine Turkish activists were killed when the Israeli navy attacked the vessel in global waters.More news: Trump says North Korea summit talks continue
At least 110 Palestinians have been killed by Israeli fire since the protests started on March 30 and thousands more were injured.
Low-level demonstrations along the border have continued since protests peaked on May 14, when at least 61 Palestinians died as tens of thousands of Gazans protested the USA moving its embassy from Tel Aviv to Jerusalem.
Earlier in May, some 300 burning kites were flown from Gaza across the Israeli border sparking several small fires in Israeli fields, the Times of Israel reported.
Israel has faced worldwide condemnation for its conduct on the border, with many citing to a use of "disproportionate" against seemingly peaceful protests.
Palestinian Islamic Jihad spokesman Daoud Shihab suggested the two killed were members of the organization.
However, Israel has defended its use of live fire claiming Hamas engineers the marches to infiltrate the border and carry out terror attacks.