The two men, Israeli-Argentinians, were rescued as Israel carried out air strikes on the southern Gazan city.
Israel says two male Israeli hostages have been rescued in a raid in Rafah, amid reports of heavy Israeli air strikes on the southern Gazan city.
The Israeli military says the two men are in “good medical condition”.
Earlier, the Palestine Red Crescent Society said Rafah was under attack. Some 1.5 million people are sheltering in the city.
It follows warnings from the international community over Israel’s planned offensive there.
Israel said it had conducted strikes in southern Gaza, with the Hamas-run health ministry reporting dozens of deaths.
Witnesses in the city spoke of overnight air strikes on Rafah’s north and centre. Helicopters and boats were also involved in the attack, residents told the BBC.
There are conflicting reports on the casualties: the AFP news agency reported that “around 100 people” were killed, citing Gaza’s Hamas-run health ministry. Meanwhile, Associated Press reported that at least 50 Palestinians were killed, quoting local hospital officials.
In a statement on social media, the Israel Defense Forces (IDF) said that during an overnight “joint operation between the IDF, ISA [Israel Security Agency or Shin Bet], and Israel Police, two Israeli hostages from Kibbutz Nir Yitzhak were rescued: Fernando Simon Marman (60) and Louis Har (70)”.
The rescued hostages were taken to Sheba Medical Center in central Israel for tests.
The hostages were found on the second floor of a building in Rafah, said Rear Admiral Daniel Hagari, a spokesman for the Israel Defense Forces (IDF).
He said Israeli forces had engaged in “heavy exchanges of fire at several locations simultaneously, with many terrorists”.
Armon Aek, acting director at Sheba Medical Center, later said: “I’m very happy to announce that this night, two released hostages landed here.
“They were received in our ER [examination room] and initial examination was conducted by our ER staff and they are in a stable condition.”
Israel’s military launched its operations in the Gaza Strip after more than 1,200 people were killed in southern Israel on 7 October by Hamas gunmen, who also took 253 people hostage. A number of those hostages were later released.
On Sunday, the Hamas-run health ministry in Gaza said 112 more Palestinians had been killed by the Israeli military over the previous day, bringing the overall death toll to more than 28,300 and more than 67,900 injured.
A number of countries and international organisations have warned Israel against conducting its planned offensive in the city, where an estimated 1.5 million people are sheltering. Most of them have fled from the rest of Gaza.
A senior UN humanitarian official has told the BBC that there is nowhere safe for them to go now.
Rafah – on the border with Egypt – is the only open point of entry for humanitarian aid into Gaza.
Your device may not support this visualisation
On Sunday, US President Joe Biden told Israeli Prime Minister Benjamin Netanyahu that a Rafah offensive should not happen without measures to ensure the safety of civilians.
Mr Biden said Israel needed a “credible and executable plan” to protect the more than a million people in the city, according to the White House.
UK Foreign Secretary David Cameron earlier said “over half of Gaza’s population are sheltering in the area”, while Saudi Arabia warned of “very serious repercussions” if Rafah was stormed.
Mr Netanyahu has insisted it will go ahead and a plan is being prepared.
Meanwhile, Gaza’s Hamas rulers said there could be “tens of thousands” of casualties, warning that any operation would also undermine talks about a possible release of Israeli hostages held in the territory.
This video can not be played