The German-language website, GIMF, which stands for Global Islamic Media Front, contained videos from al-Qaeda, Mesopotamian al-Qaeda and the radical group Ansar al-Islam.
It also contained two videos made in Germany demanding the withdrawal of German and Austrian troops from Afghanistan, the prosecutor-general's office in Karlsruhe said.
The suspects, aged 23 and 26, were both German nationals. A third German, 19, who was already in custody on another matter was also suspected of involvement in running the site.
Police arrested the two men men Tuesday in the German towns of Biberach and Schlangen on warrants issued last week. A further five persons were under suspicion after 12 premises were searched during the day.
Explaining why managing a Web site was considered to be terrorism, the prosecutors said it spread propaganda.
"The operators of GIMF assist the purpose of Islamist terrorist groups to reach the largest possible audience with propaganda that serves to mobilize more supporters and intimidate the western public," the statement said.