After barricading themselves in, the settlers dropped Israeli flags from the building.
The site has been the subject of an ongoing legal battle, with settlers claiming they purchased the building from its Palestinian owners.
Settlers raided the building on Tuesday and returned the following day, taking over two of its three floors and moving in furniture.
Videos show Israeli soldiers dragging Palestinians away from the home, while a crowd of young settlers looks on, singing and dancing to celebrate the eviction of the Abu Rajab family.
Israeli Prime Minister Benjamin Netanyahu ordered the defense ministry and the military not to evict the settlers.
Netanyahu previously urged against the eviction of settlers from the building during an earlier takeover attempt in 2013.
The Israeli army declared the building a closed military zone on Wednesday, reportedly not allowing any more settlers to enter.
Previous takeover attempt
Settlers made their first attempt to take over the building in 2012.
They were evicted by the Israeli military after failing to produce documents proving they had bought the building, according to the settlement watchdog Peace Now.
Since then, the settlers have put forward documents claiming ownership, but the Abu Rajab family say they are forged.
Israeli officials are reportedly reviewing the documents as they consider how to proceed.
Approximately 850 settlers live in a zone of Hebron which is under full Israeli military control. That zone includes Hebron’s Old City and the Ibrahimi mosque, which Muslims and Jews hold to be the burial site of the prophet Abraham.
Earlier this month the United Nations cultural organization UNESCO passed two resolutions recognizing the Ibrahimi mosque as an endangered Palestinian heritage site.
An American settler massacred 29 Palestinian worshippers at the mosque in 1994.
Settlers roam freely in the area of Hebron which is under full Israeli military control, while Palestinians are subjected to severe movement restrictions, including segregated roads, and violence and harassment by soldiers and settlers alike.