Israeli soldiers wounded two Arab students yesterday after opening fire during a violent demonstration at Al Najah University in Nablus in the occupied West Bank, witnesses said.

In another incident, suspected Palestinian guerrillas opened fire on a bus loaded with Jewish children near the Israeli settlement of Eilon Moreh, near Nablus, Israeli state radio said. None of the children were hurt but the driver and a guard were lightly wounded, the report said.

The latest in a series of student disturbances erupted when scores of Arabs refused to enter their classrooms and started to march with banners carrying Palestinian nationalist slogans and the illegal Palestinian flag.

Israeli Army officers and police approached the students and asked them to disperse. The students refused and blocked the streets with stone barricades and burning tires, the witnesses said. Some students threw rocks and Israeli troops moved in, first firing tear gas, then bullets.

In Tel Aviv, meanwhile, a spokesman for the military occupation government on the West Bank said Rabbi Meir Kahane, American-born founder of the militant Jewish Defense League imprisoned for inciting anti-Arab violence in the West Bank, is to be released Dec. 12.

Kahane will have served three months of a 9 1/2-month sentence. His followers have passed for reduction of the term. The West Bank military governor agreed to the request and Prime Minister Menachem Begin ratified it, the spokesman said.