Israel named the freed hostages as 21-year-old Mia Schem, who was seized at a dance party along with many of the other hostages abducted into Gaza, and 40-year-old Amit Soussana. Schem also holds French nationality.
The warring sides had agreed to extend their ceasefire for a seventh day, while mediators pressed on with talks to extend the truce further to free more hostages and let aid reach Gaza.
Palestinians visit their houses destroyed in the Israeli bombings during the temporary ceasefire. (AP PHOTO)
The truce has halted bombing and allowed some humanitarian aid into Gaza after much of the coastal territory of 2.3 million people was reduced to wasteland in an Israeli campaign in retaliation for a deadly rampage by Hamas militants on October 7.
The armed wing of Hamas claimed responsibility for a deadly shooting in Jerusalem, which Israel called further proof of the need to destroy the militants, although there were no signs of this scuppering the Gaza truce or release of hostages.
Earlier, Israel, which has demanded Hamas release at least 10 hostages per day to hold the ceasefire, said it received a list at the last minute of those who would go free on Thursday, allowing it to call off plans to resume fighting at dawn.
US Secretary of State Antony Blinken, in Israel during his third visit to the Middle East since the war began, said the truce was "producing results".
"We have seen over the last week the very positive development of hostages coming home, being reunited with their families. And that should continue today," he said.
"It's also enabled an increase in humanitarian assistance to go to innocent civilians in Gaza who need it desperately."
US officials said Blinken also told the Israelis to ensure the safety of Palestinian civilians once the war resumes.
Egypt's state media body said Egyptian and Qatari mediators were working to negotiate a further extension of the truce for two days.
So far militants have released 97 hostages during the truce: 70 Israeli women, teenagers and children, each freed in return for three Palestinian women and teenage detainees, plus 27 foreign hostages freed under parallel agreements with their governments.
Shortly after the agreement, two Palestinian attackers opened fire at a bus stop during morning rush hour at the entrance to Jerusalem, killing at least three people. Both attackers were "neutralised", police said.
Israeli National Security Minister Itamar Ben Gvir visited the sight of a shooting in Jerusalem. (EPA PHOTO)
"This event proves again how we must not show weakness, that we must speak to Hamas only through (rifle) scopes, only through war," said hard-right National Security Minister Itamar Ben-Gvir at the site of the attack.
Hamas said the attackers were its members, and its armed wing claimed responsibility for the attack in response "to the occupation's crimes of killing children and women in Gaza".
But neither side appeared to treat the attack as an explicit renunciation of the truce.
Israel has sworn to annihilate Hamas, which rules Gaza, in response to the October 7 rampage by the militant group, when Israel says gunmen killed 1200 people and took 240 hostages.
Until the truce, Israel bombarded the territory for seven weeks. Palestinian health authorities deemed reliable by the United Nations say more than 15,000 Gazans have been confirmed killed, around 40 per cent of them children. A further 6500 are missing, many feared still buried under rubble.
Gazans have been able to use the week-long truce to venture out, visit abandoned and destroyed homes, and dig scores more bodies out of the wreckage. But residents and international agencies say the aid that has arrived so far is still trivial compared to the besieged enclave's vast humanitarian needs.
