The girls, reported to be between 3 and 6 years old, were members of a German family of five who have been held by kidnappers the Yemeni government believes have links to Al-Qaeda. The pair were said to be in a good condition.
"Saudi Arabia has retrieved two German children kidnapped in Yemen," a Saudi interior ministry spokesman said. "The two children were in a border area between the two countries."
Yemen, next door to the world's top oil exporter, surged to the forefront of Western security concerns after the Yemen-based regional arm of Al-Qaeda claimed responsibility for a failed attempt to bomb a US-bound plane in December.
The United States and Saudi Arabia want Yemen to focus its efforts on fighting Al-Qaeda, fearing the global militant group will take advantage of Yemen's instability to spread its operations to the neighboring kingdom and beyond.
The German family was among a group of nine foreigners taken hostage in northern Yemen in June, of which three women — two Germans and a South Korean — were later found dead. Three German family members and a Briton remain missing.
"We received good news and bad news," Reinhard Poetschke, the mother's brother, was quoted telling the Neue Osnabruecker Zeitung newspaper according to an advance release.
"Both daughters are free but the son is probably no longer alive. We don't know anything about the fate of the parents."
He said the family in Germany was informed about the rescue on Monday afternoon. "Now we're making preparations for the girls' return home," he said.
Kidnappings of foreigners and Yemenis are common in the impoverished Arabian Peninsula country, where hostages are used by disgruntled tribesmen to press demands on authorities.
Most hostages have been freed unharmed, but in 2000 a Norwegian diplomat was killed in crossfire and in 1998 four Westerners were killed during a botched army attempt to free them from Islamist militants who had seized 16 tourists.
The German foreign minister said the rescued girls were in relatively good health and would return home on Wednesday, but he remained concerned about the remaining German hostages.
"Our efforts are continuing undiminished to shed light on the whereabouts of the remaining hostages. Their fate is causing us great concern. We are hoping for a happy outcome for them too," Foreign Minister Guido Westerwelle said.
A British embassy spokeswoman in Yemen said Britain remained concerned for the safety of the one British hostage.
Yemeni tribal sources said the two girls were found during Saudi cross-border raids, backed by helicopters, in several villages on Monday in the northern region of Saada near the Saudi border, but gave no further details.
The operation to free the girls was carried out in coordination with Yemeni security forces, Mansour Al-Turki, the Saudi interior ministry spokesman for security affairs, told Al Arabiya television.
No group has claimed responsibility for the June abduction, which occurred in an area where Shiite rebels have been fighting government troops on and off since 2004. The rebels have denied carrying out the kidnapping.
In south Yemen, negotiators were also working to free two Chinese oil workers kidnapped by suspected separatists on Sunday. Xinhua news agency said tribesmen had agreed to free the workers but there was no news yet they had actually been let go.
