Reykjavik city council has backtracked after announcing that it had voted to boycott all Israeli products.
Last week, the Icelandic capital's municipality said it was in favour of a boycott "as long as the occupation of Palestinian territories continues".
Council members said the boycott was a symbolic act demonstrating their support for Palestinian statehood and condemnation of Israel's "policy of apartheid".
However, over the weekend the city's mayor Dagur Eggertsson said that only goods produced in "occupied areas" of Israel will be boycotted.
Jewish groups around the world and the Icelandic government - including the prime minister, who called the boycott "ridiculous" - had rounded on the council. Mr Eggertsson said: "I expected a reaction, but not on this scale."
Chief Rabbi Pinchas Goldschmidt, President of the Conference of European Rabbis, said: "If Reykjavik is serious about their ban they need to shut down their computers and hand in their mobile phones, all of which work thanks to Israeli innovation that benefits every part of modern life.
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