Kifah and Intisar Ajouri were blindfolded and driven into the Gaza Strip in two armoured vehicles before being left in a vineyard on the edge of a Jewish settlement.
Their expulsion followed a landmark ruling by Israel's Supreme Court on Tuesday, which permitted the army to expel Palestinians proven to have been involved in attacks.
But UN Secretary General Kofi Annan denounced the expulsion as tantamount to collective punishment and a violation of international law. Israel denies these charges.
In a statement read by spokesman Fred Eckhard, Mr Annan also expressed concern about the recent spate of civilian deaths during Israeli raids.
'Serious implications'
"While the secretary-general has consistently condemned suicide bombings and upheld Israel's right to defend itself, he wishes to stress that self-defence cannot justify measures that amount to collective punishments," Mr Eckhard said.
"Such transfers are strictly prohibited by international humanitarian law and could have very serious political and security implications."
Israel says the expulsion will act as a powerful deterrent to attacks by Palestinian militants who have carried out scores of suicide bombings since the start of the Palestinian intifada (uprising) nearly two years ago.
The Israeli Defence Minister, Binyamin Ben-Eliezer, told Israeli Army Radio there were "certainly more people" being considered for expulsion.
Decoy convoy
The Ajouris were taken on Wednesday morning to an Israeli military base at Beit El in the West Bank, where they said farewell to their families before being driven to Gaza.
The Israeli military gave the pair 1,000 shekels ($200), bottles of water and a change of clothes for their resettlement.
Israeli media said the army used a decoy convoy to divert throngs of media waiting at the main Erez Crossing point between Israel and Gaza, while troops used backroads to drive the Ajouris into Gaza.
Intisar Ajouri said she and her brother were dropped off in an orchard on the edge of the Jewish settlement of Netzarim.
"They took us out of the tanks and freed our hands and we found ourselves in the middle of a farm planted with figs and grapes," she told a news conference.
She said they were found by a farmer and were taken to a human rights centre in Gaza City.
"There's no grounds for deporting us," she said, "they [Israel] just want to scare the Palestinians.
'Aided militant'
On Tuesday, Israel's highest court rejected a petition against the expulsion order, issued last month by the Israeli army.
It said there was evidence that the Ajouris "were involved in terrorism to the extent required such that they presented a reasonable possibility of danger".
The army said they had helped their brother, Ali, organise suicide bombings, including a double bombing in Tel Aviv on 17 July, 2002.
Intisar Ajouri was said to have sewn explosives into a belt used by a suicide bomber in one of the attacks.
The judges said the Ajouris, who come from Nablus, could remain in Gaza for up to two years.
The Palestinian Authority condemned the move and said it would ask the United Nations Security Council to discuss the expulsions.