The gunmen - who were Arab Israeli citizens - started shooting at police officers in Hadera, a city about thirty miles north of Tel Aviv.
The assailants were then shot dead by police who were dining at a nearby restaurant - as the U.S. secretary of state and three Arab foreign ministers visited the country for a summit.
One eye-witness describes the scene:
"My wife and I were driving in the car when we heard gun shots. We didn't understand what it was. We slowed down and we saw two people on the road. There were many shots. We ducked down in the car, they shot towards us, and we ducked down inside."
Islamic State claimed responsibility for the attack in a statement posted on its Telegram account.
U.S. Secretary of State Anthony Blinken condemned the attack on Twitter writing "Such senseless acts of violence and murder have no place in society. We stand with our Israeli partners and send our condolences to the families of the victims".
National police spokesman Eli Levy told Israeli TV their officers prevented a bigger attack :
"Our officers managed to neutralise the assailants and prevent a bigger terrorist attack."
Israeli security officials have also cautioned about an escalation in attacks on Israelis in the run-up to Ramadan in April - a volatile period in the past.
Jordan's King Abdullah is due to meet Palestinian President Mahmoud Abbas in the Occupied West Bank on Monday.
