Post-verdict calls to pardon Azaria were backed by Prime Minister Benjamin Netanyahu, who wrote that the trial's conclusion was "a hard and painful day".
Numerous army's top brass, as well as former defense minister Moshe Ya'alon, had railed against Azaria's "unethical" decision to shoot the assailant, Abdel Fattah al-Sharif, in the head almost 15 minutes after the latter was shot and wounded as he attempted to stab an IDF soldier in Hebron.
Thirty-six Israelis have also been killed in mostly stabbing and shooting incidents carried out by Palestinians.
"The fact that the man on the ground was a terrorist does not justify a disproportionate response", said Col. Maya Heller, delivering the verdict.
Azaria faces up to 20 years in jail, but legal experts expect the sentence to be shorter.
Israeli defence minister Avigdor Lieberman said he agreed with the "difficult verdict".
"We found there was no room to accept his arguments", she said.
A military court is set to decide whether an Israeli soldier is guilty of manslaughter charges for the killing of a wounded Palestinian previous year.
Sharif and another 21-year-old Palestinian, Ramzi Aziz al-Qasrawi, stabbed and wounded an Israeli soldier before troops opened fire on them, wounding Sharif and killing Qasrawi.
Right-wing politicians and hundreds of Azaria's supporters have insisted he was treated unfairly by left-wing elites in the army and media. The judges rejected the idea that Azaria thought the man was wearing an explosive belt or might grab the knife he had just used to stab soldiers, which was still lying nearby.
The case against Azaria has divided opinion among the Israeli public, politicians and members of the military, and focused attention on the military's code of ethics.
In September 2016, Human rights group Amnesty International highlighted to the Israeli authorities at least 15 cases where Israeli soldiers went unprosecuted after deliberately shooting Palestinians dead, despite the victims posing no immediate threat. In a unanimous decision, the panel found him guilty of manslaughter and reserved sentencing for a later date.
The court is scheduled to convene at the defence ministry building in Tel Aviv at 10am local time (08:00 GMT) and later issue a verdict in the high-profile case that raised questions over rules of engagement towards perceived threats by Palestinians.
It comes after almost a year of a "knife intifada", in which mostly politically-unaffiliated Palestinian youths attacked soldiers and civilians on the street with knives, vehicles, and other unconventional weapons.
The vitriol continued on Facebook, where Heller was called a "Nazi", a "whore", and wishing her dead in a terror attack.
Global mass media presented the victim previous year as an "assailant" attempting to stab Israeli settlers. There is also deep sympathy for soldiers in Israel, where military service is compulsory for Israel's Jewish majority.
While human rights activists say extrajudicial killings of Palestinians are not unprecedented in the West Bank, it is the first such instance to be clearly caught on camera. Journalists covering the demonstration say they were attacked by demonstrators.