The three have appeared before court, a police spokesman said. He added that the suspects admitted to abducting 16-year-old Mohammed Abu Khdeir and setting him on fire. They also re-enacted the murder.
The boy was taken on July 2 near his home in east Jerusalem and his charred body was later found in a forest.
Israel's Shin Bet security service said the suspects, whose names were not released, were motivated by revenge after the kidnapping and killing of three Israeli teenagers.
Police are investigating three others for involvement in the killing and they remain under house arrest.
Meanwhile, the Israeli military said it downed a drone launched by Gaza militants, the first time it has encountered an unmanned aircraft since the start of its offensive last week, as new Israeli airstrikes killed four more Palestinians in the coastal strip.
Israel began its campaign against militants in the Hamas-controlled Gaza last Tuesday, saying it was responding to heavy rocket fire from the densely populated territory.
The military says it has launched more than 1,300 airstrikes since then, while Palestinian militants have launched nearly 1,000 rockets at Israel.
The Palestinian health ministry in Gaza has said 172 people have died in Israeli air attacks, including dozens of civilians.
There have been no Israeli deaths as a result of Hamas rocket launches, though several people have been wounded, including a teenage boy who was seriously injured by rocket shrapnel on Sunday.
The Israeli military said the drone, launched from Gaza yesterday, was shot down in mid-flight by a Patriot surface-to-air missile along the southern Israeli coastline, near the city of Ashdod. Hamas claimed it launched three drones at Israel, although the military insisted there was only one.
Hamas said it has developed two types of drones - one for intelligence gathering, and one for delivering munitions. It also said it lost contact with one of the drones and that the targets included the Israeli defence ministry compound in Tel Aviv.
It was the first time the militant group publicly acknowledged it has drones in its arsenal.
The use of drones with an offensive capacity could inflict significant casualties - something the rockets from Gaza have failed to do, largely because of the success of the Israeli military's Iron Dome air defence system in shooting them down.
Israeli defence minister Moshe Yaalon said: "Hamas is trying everything it can to produce some kind of achievement and it is crucial we maintain our high state of readiness.
"The shooting down of a drone this morning by our air defence system is an example of their efforts to strike at us in any way possible."
Meanwhile, Israel continued its aerial attacks on the Gaza Strip, with four Palestinians killed in two Israeli airstrikes on the southern city of Khan Younis.
Health officials said three people from the same family and a neighbour were killed.