An Israeli military court has handed three life sentences to a Palestinian convicted of organising the kidnapping and murder of three Israeli teenagers.

Hussam Hassan Kawasme was also ordered on Tuesday to pay $63,000 in compensation to each of the three families.

"The accused was convicted of the most serious crimes ... the cold-blooded and terrible murder of three young people who were going home to their families," court documents said.

"As a result of his actions, the accused is sentenced to three life terms. He will be removed from society and spend the rest of his life in prison.

"In addition he will pay compensation of 250,000 shekels to each of the families of the youths."

Kawasme was arrested in connection with organising and financing the June 12 kidnapping of the three teenagers that triggered a series of events which helped lead to Israel's deadly 50-day offensive against Gaza.

Amer Abu Eisha, 32, and Marwan Kawasme, 29, who allegedly carried out the attack, were both shot dead during an exchange of fire with the Israeli army in the southern West Bank city of Hebron in late September.

The abduction of the Jewish seminary students - Eyal Yifrach, 19, and 16-year-olds Gilad Shaer and Naftali Fraenkel -from a hitch-hiking stop near Hebron sparked a massive manhunt in which hundreds of Palestinians were arrested and at least five killed.

Israel blamed the deaths on Hamas, but the group said the three were operating independently.

Hundreds of Israeli troops were deployed in the search for the missing teens, leading to at least eight Palestinian deaths and more than 500 arrests.

The bodies of the three Israelis were found three weeks later.

In an apparent revenge attack, 16-year-old Palestinian Mohammed Abu Khdair was abducted by three men on his way to a local mosque. His body was found hours later, dumped in a forest outside of Jerusalem, burned beyond recognition.

The operation triggered a surge in rocket fire from Gaza that ultimately led to an Israeli offensive which left nearly 2,200 Palestinians dead, most of them civilians, and 73 dead in Israel, mostly soldiers.