The two Israelis are charged with being part of a terror organization.
In July, attackers hurled Molotov cocktails into the Palestinian family's home in the West Bank and set it ablaze.
Ali Saad al-Dawabsheh, who was 18 months old, and his parents died in the attack. Ali's brother was severely wounded.
Both Israelis and Palestinians described the attack as act of terrorism.
"It's a war crime and a humanitarian crime at the same time," Palestinian President Mahmoud Abbas
said shortly after attack.
Israeli Prime Minister Benjamin Netanyahu
said the crime was "reprehensible and horrific."
takes a strong line against terrorism regardless of who the perpetrators are," he said.
Authorities found the words "price tag" on the walls of the Dawabsheh house in the village of Duma, Israeli police said.
A "price tag" attack is a term used by radical Israeli settlers to denote reprisal against Palestinians in response to moves by the Israeli government to evacuate illegal West Bank outposts, according to officials.
On Sunday, two other Israelis were indicted for other "price tag" attacks against Palestinians.
Israeli police spokesman Micky Rosenfeld said dozens of people were arrested as part of the investigation into the arson attack.
He said the main suspect was connected to several other attacks, including the burning of a church in Jerusalem, two attacks in another village, the torching of a Palestinian taxi and the arson of a storage room in a Palestinian home.
The suspect's lawyer described the indictment as "opening a Pandora's box against the Israeli Security Agency."
"There was abuse. There were a lot of things that shouldn't have been done in a democratic country," defense lawyer Itamar Ben-Gvir said. He said his client did not admit guilt to police, and "there are still many questions regarding this incident."
The slain toddler's uncle also expressed disappointment, for different reasons.
Naser al-Dawabsheh said he did not think justice was being served because he believes that many more people were involved in the arson attack.
"This is a very sad situation and (sad) day since justice is not being used rightfully and in a lawful manner," Dawabsheh said.