Relatives of a Palestinian family burned alive have filed a lawsuit against Israel demanding it be held responsible and pay damages over the 2015 attack blamed on Jewish groups in the occupied West Bank.

Eighteen-month-old Ali Dawabsheh died along with his parents when their house was firebombed in July 2015.

His brother Ahmed, now six, was the sole survivor but was left with severe burns.

"Today we filed a complaint with the Nazareth district court demanding the state of Israel be held responsible for the burning of the Dawabsheh family in the village of Duma in the West Bank," Hassan al-Khatib, a lawyer who represents the family, said.

Ahmed's uncle Nasser Dawabsheh said they were seeking an admission of responsibility from the state and $4.4m in damages.

'Medical incapacity'

Israel has occupied the West Bank for 50 years and Khatib said the state must accept responsibility for the killings.

"The child, Ahmed, suffers from disability," he added, as well as "medical and psychological incapacity from the loss of his father, mother and brother".

Amiram Ben-Uliel, 21, from the northern West Bank settlement of Shilo, was charged with three counts of murder and one of attempted murder, arson and conspiracy to commit a hate crime.

READ MORE: The death of Ali Dawabsheh

A 17-year-old, whose name remains under a gag order, was charged with being an accessory to committing a racially motivated murder.

An Israeli defence official said the family would not be eligible for compensation that applies to "terror" victims since it is only open for Israeli citizens, AFP reported.

The official said that the family would be able to apply instead to an alternative committee that compensates people for so-called nationalist attacks.

Nasser Dawabsheh confirmed to AFP that they had rejected a previous compensation offer because they were demanding the state accept responsibility, which he said had been refused.