The men, named in court documents as Omar Al-Kutobi and Mohammad Kiad, were advanced in their preparations for an act of terrorism in Australia as revenge for "incidents overseas," New South Wales Deputy Police Commissioner Catherine Burn said in a statement Wednesday.
They were apprehended on Tuesday afternoon after a raid at a house in Fairfield, a suburb in western Sydney, before being charged with "acts done in preparation for, or planning terrorist acts," the statement said.
"As a result of the police activities yesterday a number of items were seized and will be included as part of our evidence in court, and include a video recording, a flag, a machete and a hunting knife," Burn added.
Al-Kutobi and Kiad did not apply for bail when they appeared via video link at a court hearing in Sydney on Thursday, NSW Department of Justice spokesperson Georgie Loudon told CNN.
Their case has been adjourned to March 16.
Police officers from the Joint Counter Terrorism Team Sydney and members of the Tactical Operations Unit took part in Operation Castrum, which also included a search of the Fairfield address, a motor vehicle and their place of work, the NSW Police statement added.
"Our message is we are watching, we are capable and we will act. That is what the community expects and that's what we will deliver," Burn said.
Suspects made video
Meanwhile, Prime Minister Tony Abbott told the country's parliament that the two men made a video saying they would carry out their attack by "stabbing the kidneys and striking the necks," the Australian Broadcasting Corporation (ABC) reported
"Kneeling before the death cult flag with a knife in his hand and a machete before him, one of those arrested said this: 'I swear to almighty Allah we will carry out the first operation for the soldiers of the caliphate in Australia,' Abbott said.
"He went on to say, 'I swear to almighty Allah, blonde people, there is no room for blame between you and us. We only owe you, stabbing the kidneys and striking the necks.'
The prime minister added: "I don't think it would be possible to witness uglier fanaticism than this -- more monstrous fanaticism and extremism than this -- and I regret to say it is now present in our country."
In December last year, Australian authorities stormed the Sydney cafe where a self-styled Muslim cleric had been holding hostages
, killing the gunman. They moved in some 16 hours after the siege began, after hearing gunfire inside the Lindt Chocolate Cafe in the center of the city. Two of the 17 hostages initially held by the gunman died.
Two other men will appear in court in Sydney later this month after they were charged with terror offenses late last month, with one accused of possessing documents designed to facilitate a terror attack on Australian soil.
The arrests were made as part of Operation Appleby, an ongoing investigation into Islamist extremists, which led to sweeping pre-dawn counter-terror raids in Sydney in September.
Footage of one of the two men, identified as Sulayman Khalid, 20, appeared in Australian media after his arrest, showing him dressed in a jacket bearing the ISIS flag, storming off the set of an Australian current affairs show in August in which guests had been discussing local support for Islamic extremism.