The major supermarket retailers are set to follow the Department for the Environment, Food and Rural Affairs (Defra) guidelines issued on Thursday calling for the clear labelling of goods and produce originating from the West Bank.
Defra Secretary of State Hilary Benn said the advisory was a response to consumer demand for information about the origin of produce that has been produced in the West Bank.
"Importers, retailers, NGOs and consumers have asked the government for clarity over the precise origin of products from the Occupied Palestinian Territories," Benn said. "The label 'West Bank' does not allow consumers to distinguish between goods originating from Palestinian producers and goods originating from illegal Israeli settlements."
The Foreign Office also said the government published the advice to "help provide clarity to traders and retailers who want to offer their consumers more information about the origin of produce from the West Bank."
The advisory drew an angry response from Israel's Foreign Ministry, which said Friday that it would promote further radicalization of Palestinians.
"We have expressed concern and disappointment to British authorities," said spokesman Yigal Palmor. "This measure is clearly politicized, because it singles out Israel and yields to demands by anti-Israel groups. It will send a message of encouragement to those who want to promote a boycott and it will only radicalize the positions of the Palestinians at a time when we are all engaged in efforts to resume negotiations as soon as possible."
The Board of Deputies of British Jews accused the government of being inconsistent and caving in to groups calling for a wider boycott of Israel.
"The government's opposition to boycotts of Israel is inconsistent with these guidelines which appear to have been published at the behest of the very same groups that promote the wider boycott campaign," the board said.
"These guidelines will potentially impact upon many Palestinian workers, whose livelihoods are inextricably linked with their Israeli counterparts, and they do nothing to advance the peace process," it added.
Zionist Federation UK chairman Andrew Balcombe also questioned the government's decision saying he was "appalled" to see the government caving in to groups with sinister agendas.
Balcombe said he had recently asked the British ambassador in Israel who was behind the campaign for labelling transparency.
"The answer I got was Oxfam and War on Want - two of the most viciously anti-Israel NGOs," Balcombe said. "The government should listen to those 30,000 Palestinians dependent on settlements for their income. Local Palestinians have repeatedly said that a boycott would increase unemployment and hinder economic development in the Palestinian territories. The economy of the West Bank is rapidly growing; this advisory will be bad for growth and bad for peace."
Defra said that the ruling was voluntary but the major supermarkets said they always followed Defra guidelines, suggesting that the labelling had been a government initiative and not done at their behest.
Waitrose said they welcomed clear advice on this issue as they were keen to ensure customers can make an informed choice.
"We will be following Defra guidance on the small number of West Bank lines that we sell," a Waitrose spokesman said.
Tesco also said they would comply with the guidelines: "Our approach is to label clearly the origin of products so customers can choose whether they wish to buy products from specific regions or not," a spokesperson said.
Sainsbury's said it was a government initiative but will be complying with Defra's guidelines adding that they have no intention to stop buying Israeli goods.
"It is business as usual for Sainsbury's," the spokesperson said. "We will continue to buy products from Israel and the West Bank."
Asked if this could eventually lead to stores giving up on importing Israeli produce, the spokesperson said it would never be the case as they have "full traceability on produce back to the individual growers."
The government discussed the labelling issue at a roundtable meeting in March. At the meeting was Defra, the Food Standards Agency; Revenue and Customs; the Department for Business, Enterprise and Regulatory Reform; the Department for International Development and the Foreign Office.
Also attending was the charity Oxfam.
Oxfam had initiated the issue after writing to Prime Minister Gordon Brown calling for clearer guidelines on produce originating from settlements, and it was this that facilitated the charity's inclusion at the meeting, according to the government.
"Oxfam were invited because they have shown a consistent interest in this issue, but this was essentially a meeting between retail groups and the government," the Foreign Office said at the time.
The government said at the time it was only an industry consultation to look at the feasibility of giving the public more details on the origins of produce. On Thursday, the government said it was issuing the labelling advice. While it said it was opposed to boycotts, the government said that settlements are a significant obstacle to peace in the Middle East.
Oxfam welcomed the government's decision.
"Oxfam welcomes the government's decision to provide guidance on how to improve labelling of products from the West Bank," Barbara Stocking, Oxfam's chief executive said. "Trade with Israeli settlements, which are illegal under international law, contributes to their economic viability and serves to legitimize them. It is also clear from our work in West Bank communities that settlements have led to the denial of rights and create poverty for many Palestinians."
Groups that have been campaigning for a comprehensive boycott of Israel, as part of a wider campaign of "boycott, divestment and sanctions (BDS)" also lauded the government's decision.
The radical fringe group Palestine Solidarity Campaign (PSC) said: "The PSC would like to thank all its members and supporters, and all the organizations that worked with us, for their pressure on labelling goods from illegal Israeli settlements. This is a good step in the right direction but we need to keep the pressure up - the government must ban settlement goods - and build the boycott of Israeli goods!"
Anti-Israel charity War on Want, which has been warned by the Charity Commission about its sustained politicized campaigning against Israel, attacked the government's failure to take stronger action.
The charity's senior campaigns officer, Yasmin Khan, said: "By selling produce from Israeli settlements, British supermarkets like Tesco, Sainsbury's and Waitrose are profiting from Israel's illegal occupation of Palestinian land." The news was also welcomed by the Muslim Public Affairs Campaign (MPAC) - a group accused of anti-Semitism after it used material from the far right on its Web site and expressed open support for Holocaust denier David Irving.
"This is an issue MPAC has long campaigned on. Could this be the first step towards a full-on boycott of Israeli goods until it stops - unequivocally?" it said. "The Foreign Office doesn't want a full boycott. It is up to Muslims to continue to call for a full trade and cultural boycott until Israel's immoral system of apartheid is smashed."