Reports that the alleged perpetrators, said to be in their 20s, queued outside the minor's hotel room awaiting their turn to take advantage of her inebriated state prompted protests in several Israeli cities on Thursday.
The girl had reported the alleged crime to police in Eilat last week but the case had previously gone largely unnoticed.
"Two suspects have been arrested in connection with an incident that took place in Eilat involving a 16-year-old female teenager," police spokesman Micky Rosenfeld told AFP news agency.
Protests in the big cities of Tel Aviv and Jerusalem on Thursday evening prompted Israel's leaders to speak out against crimes against women.
'Shocking'
"It's shocking - there's no other word for it," said Netanyahu, calling for all the suspects to be put on trial.
"It's not only a crime against a young girl, it's a crime against humanity itself that deserves condemnation from all of us."
"Sexual assault, rape, sexual exploitation, sexual violence - these are some of the stains that cannot be deleted," he said.
"These are cases of unforgivable loss of boundaries, and they destroy us as a society. As humans."
The two suspects in custody were both residents of Hadera, a northern Israeli coastal city, and both with criminal records from previous felonies, according to media
On Friday, dozens of Hadera residents, including Mayor Tzvika Gendelman, gathered to protest against the alleged rape and extend their support to the victim.
"Despite there being suspects from our city, we Hadera residents condemn it," Gendelman said in a Facebook video after the demonstration."We'll do whatever it takes to uproot this affliction," he said.
Ilana Weizman of women's rights group HaStickeriot said one in five Israeli wonen.
"Despite there being suspects from our city, we Hadera residents condemn it," Gendelman said in a Facebook video after the demonstration.
"We'll do whatever it takes to uproot this affliction," he said.The protesters united under the banner 'we won't be silent anymore', with around 1,000 in the capital - where protesters briefly blocked traffic - 150 in Jeruselam, and more in Givatayim, Haifa and elsewhere.
Ilana Weizman of women's rights group HaStickeriot said one in five Israeli women was raped during her lifetime with 260 cases reported every day.
'We must educate our boys on the issue of consent ... from a very young age,' she said.
Many protesters referred to a case last year, when a 19-year-old British woman claimed she had been gang-raped by 12 Israeli males, aged 15 to 18, at a hotel in Cyprus. All 12 were initially arrested but released shortly after.
She was later found guilty of lying about being gang-raped and given a four-month suspended sentence, but the case was condemned by women's rights groups and the woman's lawyer said she was appealing against her conviction.
The protest organisers said on Thursday: 'This case does not stand alone and is a direct continuation of the way in which the "youths" from Ayia Napa were received and a direct continuation of the public discourse surrounding the soccer players affair.'
Ilana Weizman of women's rights group HaStickeriot said one in five Israeli women was raped during her lifetime with 260 cases reported every day.
"We must educate our boys on the issue of consent ... from a very young age," she said.
The plaintiff's lawyer Shani Moran on Friday said her client was "not doing well".
"There is no doubt the people involved knew she was a minor," she told public broadcaster Kan, noting the event was most likely filmed by the alleged perpetrators.
Last year, a 19-year-old British woman claimed she had been gang-raped by 12 Israeli males, aged 15 to 18, at a hotel in Cyprus.
She was later found guilty of lying about being gang-raped and given a four-month suspended sentence.
The case was condemned by women's rights groups and the woman's lawyer said she was appealing against her conviction.President Reuven Rivlin wrote an open letter to Israel's youth.'Sexual assault, rape, sexual exploitation, sexual violence - these are some of the stains that cannot be deleted,' he said. 'These are cases of unforgivable loss of boundaries, and they destroy us as a society. As humans.'
Netanyahu's coalition partner and defence minister Benny Gantz asked: 'What is a man who is standing on a crowded line with dozens of others, on the way to a room where a young, disoriented girl is lying down, trying to prove?
'The police investigation is still underway, but it's important that I convey a message to those who participated or bore witness to this case or others: The only thing you've proven is what depravity of your soul and morality you are capable of.'
Thousands of Israelis took to the streets to protest nationwide - with hundreds gathering in Tel Aviv's Habima Square joined by people in over 30 other areas across Israel to show their support for the girl. In the latest case, one suspect told investigators that a large group of men had sex with the girl but claimed that it was consensual, according to the Times of Israel, while Israeli newspaper Haaretz. made the claim that some of the men allegedly filmed the attacks on their phones.
The first suspect was reportedly arrested after messages emerged showing that there was video footage of the alleged rape.
Police say the girl was not a guest at the hotel, but had gone to the bathroom after drinking there with some of her friends. She was then allegedly taken to one of the hotel rooms and raped by the group of men, who did not all know each other.
One suspect claimed that the men 'lined up' outside the girl's room before going inside to assault her.
Another of the alleged attackers was said to have entered the girl's room under the pretence of being a medic who wanted to help, and then 'took advantage of her and slept with her when she was out of control', a friend of the girl told Israeli television.
Authorities are now awaiting the results of a medical examination, while one man has been ordered to stay in custody by a magistrates court.
Local media said the suspect was a 27-year-old from northern Israel, while a second suspect, also 27, was arrested this morning.
'At the moment we have two suspects in our hands, but it's still the beginning of a complex investigation,' An official involved in the investigation told Channel 12.
'We have an indication that there were several people in the same room. We do not know at this time what their exact number is. We also do not know at this stage what everyone present did there.'
Police have formed a special team to investigate the alleged gang rape.
