Maia and Rina Dee, reportedly aged 20 and 15 respectively, were killed in their car on Friday following a shooting by Palestinian assailants close to an Israeli settlement.
Their 45-year-old mother, Lucy Dee, was seriously wounded and is in a coma.
Their father, Rabbi Leo Dee, witnessed the attack from a separate vehicle following behind.
He led a funeral on Sunday at a cemetery in the Jewish settlement of Kfar Etzion in the occupied West Bank.
The family had moved from London to Efrat nine years ago, the BBC reports.
“Maia and Rina you are two flames who have not gone out. You will bring more light to the world. You have inspired and loved us, in return we will love you forever,” their father told mourners.
In a video published on Sky News, Rabbi Dee, who has three other children, asked: “How will I explain to Lucy what has happened to our two precious gifts?”
In tribute to “beautiful and perfect” Maia, the rabbi said: “You will always be an angel and you will always be our guardian angel.
“You wanted to sign up for another year of national service, where you could really make a difference. But you insisted that girls like you always do two years of volunteering so we waited to see what and where this would be.”
Describing his “beautiful and darling” Rina, he said: “You were such a great student. Such a great friend. You dreamt of travelling the world, now you are travelling to heaven.”
Rabbi Dee was the senior rabbi at Radlett United Synagogue in Hertfordshire from 2011-2014 and assistant rabbi in Hendon, north London, from 2008-2011, according to Sky News.
Israeli Prime Minister Benjamin Netanyahu, who described the incident as a terror attack, sent his condolences to the family in a tweet naming the sisters.
The UK’s chief rabbi, Sir Ephraim Mirvis, said that “no words can describe the depth of our shock and sadness at the heart-breaking news”.
Writing on Twitter, he said the two sisters were the children of British Rabbi Dee and his wife Lucy, which is understood to be their mother Leah’s English name.
“They were much loved in the Hendon and Radlett communities in the UK as well as in Israel, and well beyond,” he added.
The Board of Deputies of British Jews said they were “deeply shocked and saddened” at their deaths, adding that their father had previously been rabbi at Radlett United Synagogue in Hertfordshire.