An investigation into political leafleting at Sunday's Simcha on the Square is underway following complaints that radical and left-wing groups were allowed to advertise their work at the event.
Geraldine Auerbach, director of the event organisers, said material handed out by the British Shalom-Salaam Trust would be examined, and if it were found to be political in nature the organisation would not be invited in future.
"Our criterion is that no political organisation should be given a stand at the event, " she said.
The row broke out after the Zionist Federation complained that the stall of the trust - a Jewish initiative established to meet the humanitarian crisis in the Middle East, working with both Palestinians and Israelis - had featured large billboards and leaflets supporting radical political groups.
These, said ZF public-affairs director Gavin Gross, included Anarchists Against the Wall, Settlement Watch and Breaking the Silence - a group of Israeli soldiers who condemn Israel's military policies.
Mr Gross said that at last year's Simcha on the Square, the ZF had at first been refused a stand for being "political". It was allowed to take part only after agreeing to focus solely on Israeli culture.
"We were therefore amazed to find a prominent stand at this year's event organised by the British Shalom-Salaam Trust, which is connected to the fringe political group Jews for Justice for Palestinians.
"We think Simcha in the Square is a positive public festival, but are aware of the need to protect its credibility."
Mrs Auerbach said she was not aware that the trust was a political group. She said: "We understood that this was an organisation purely promoting peace. This matter has been brought to our attention and if we find it is not a totally cultural organisation we will not allow them to have a stall in future. If we had thought they were political, they would not have been at the event."
The event manager added: "The stalls application states that stallholders cannot distribute any overtly political material. Had I known that anyone was doing this they would have been asked to clear their stall under the terms of our licence. We have worked so hard to keep the event in the cultural sphere. We are very sorry for any offence caused."
A spokesperson for the British Shalom-Salaam Trust, a registered charity, defended the distribution of the leaflets, pointing out that all the organisations were legal in Israel.
She said that the charity "had displayed the work of Israeli organisations engaged in peace and human-rights activities, some alongside their Palestinian neighbours. The ways in which communities debate with and among themselves is central to what we understand by culture."
BSST's contribution to Simcha on the Square, she continued, "enabled a vital component of Israeli cultural life to be presented to Jewish people and others in London. Certainly, those who came by our stall were friendly and curious to know more about BSST and the groups we have supported.
"It cannot be anything but good for the world to know that there is space within Israel - and the British Jewish community - for this peace-orientated work of ordinary Israelis.
"The Jewish community is not monolithic and it is sad to see the Zionist Federation seeking to demonise such groups, or indeed, BSST, as ‘anti-Israel'."