How to handle non-published thesis work from previous co-workers in a publication? Im doing a MSc thesis and I need to write an article, and eventually submit it by the summer.

My work is actually based on two theses that were written past years by other students.  However, they did not publish, neither them nor my supervisor. 

Then comes the question: if I want to include the work that is referenced in one of these theses, how should I deal with it ? Should I gladly propose the previous students to be second authors, should I just cite their theses in the bibliographic part...?

Thanks !
Even if not "published" in some sense, prior work can/should/must be cited. E.g., cited literally as "... Ph.D. thesis 20xx, University of X, (unpublished)."

Unless they literally help you significantly change what they'd already done, they should not be authors on your work.