The G-2 Galeb was developed as a replacement for the Lockheed T-33 Shooting Star, which had been the most commonly used jet trainer aircraft of the Yugoslav Air Force up until 1967. Yugoslavia's VTI (Aeronautical Technical Institute) began design work on the airplane, named Galeb, in 1957. The Galeb features a straight wing with tip tanks, Folland Type 1-B lightweight ejector seats, sideways hinging canopy transparencies and under-wing hard points for light bombs and rockets. The first flight of the prototype, Galeb 1, was performed by test pilot captain Ljubomir Zekavica on 3 July 1961. Galeb 1 had three rubber tanks in the fuselage, while Galeb 2 had two fuselage tanks holding 230 gallons (US) and two wingtip tanks holding 51 gallons (US) each. Soon, after a full-size wooden mock-up, the second prototype Galeb 2 was built - establishing the G-2 type designation.

During flight tests, a maximum speed of 812 km/h (440 kt) at 6,200 m (20,100 ft) was achieved in clean configuration, with no paint and a polished airframe. Top diving speed was Mach 0.81, obtained after a prolonged dive.

Without a pressurized cabin the practical ceiling is between 7,000 (22,800 ft) and 9,000 m (29,000 ft). A pressurized cabin would have increased costs by up to 15% because all components needed to be imported. The Air Force needed a trainer with secondary combat ability that could operate from unprepared runways. Not familiar with such requirements, the designers provided for landing gear strong enough to make the aircraft suitable for landing on aircraft carriers.

The need for a safe training aircraft that is forgiving on landings meant that the wheels retract into the wings instead of the fuselage, making for a heavier, straight wing, which is less likely to stall on landing, but precludes supersonic flight. It was flown primarily by the Air Academy of Yugoslavia. Production ceased in 1985.

Production began in 1964, making it the first indigenous jet to enter mass production in Yugoslavia (the first jet-powered plane built by Yugoslavia was the Ikarus 451M in 1952, which did not enter production). After the Soko 522, it was the second aircraft built at SOKO. The first production series G-2A was entered in the aircraft register of the Yugoslav Air Force on 30 July 1965, and the last one on 6 January 1981. The G-2A was known in Yugoslav military under the N-60 designation. Production of updated aircraft for export to Libya was extended until mid-1983. Soko produced a total of 248 Galeb aircraft, 132 of which were used by the Yugoslav Air Force.