Foreign Affairs Minister Simon Coveney has said a boycott on Israeli goods would be "counterproductive".
The Minister has been urged to implement the Occupied Territories Bill, which would ban trade with settlements deemed illegal under international law.
It follows the recent violence between Israel and the Palestinian militant group Hamas.
Minister Coveney says the Government here wants a two-state solution to the Israel-Palestine conflict.
He said: “Legitimate political leadership on the Israeli and Palestinian side, with the support of the international community, can work towards a negotiated, peaceful solution. That in my view is the objective we’re after here.
“Isolating, boycotting and targeting Israel at this stage would, in my view, be counterproductive towards achieving those aims.
"It would potentially undermine Ireland’s capacity to influence others to build the kind of consensus that I think is needed.”
During last month’s violence in the Gaza Strip, Minister Coveney was vocal in criticising Israeli actions in the region.
He accused Israel of a "brutal response" to rocket fire from Gaza.
The remarks led to Ireland’s ambassador to Israel being summoned by the Israeli foreign office.
The foreign office is said to have told Ambassador Kyle O'Sullivan that Minister Coveney’s statements were "one-sided, outrageous and completely unacceptable"
The recent fighting in Israel and Gaza ended following a ceasefire, although there have been some flare-ups in the weeks since the ceasefire was agreed.
Last week, Israel launched airstrikes in Gaza after militants reportedly flew incendiary balloons into Israeli territory.
