A Sinn Féin bill that would have prevented the Irish Central Bank from approving the prospectus which allows Israel to sell bonds in the European Union has been defeated in a Dáil vote.
However, two Independent TDs supporting the Government - Barry Heneghan and Gillian Toole - backed the bill.
"I'm voting for the bill because Ireland shouldn't facilitate the sale of bonds that help fund the devastation in Gaza. This is about standing up for international law and basic human rights," Mr Heneghan said.
"I'm fully committed to the Programme for Government, but as an Independent TD, I reserve the right to act on matters of conscience. The situation is urgent, and Ireland must show leadership".
Ms Toole said that she voted for the bill because she had not received a detailed briefing on the issue and its possible impact on EU law.
Government figures insisted that the whip does not apply to these TDs.
The Dáil voted by a margin of 87 to 75 to reject the legislation which Sinn Féin said was in line with EU law, according to independent legal advice it received.
Afterwards, members of the Opposition stood up and held placards which said "Stop Financing Genocide" and "Ban Israel Bonds".
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The Government had argued that the legislation was unworkable, and Taoiseach Micheál Martin told the Dáil earlier that the Central Bank was independent of Government.
Mr Martin said the most effective response to what is happening in Gaza is to persuade people in the European Union and the United States to pull their support from Israel because of its actions.
He was responding to Sinn Féin leader Mary Lou McDonald who described the Government's explanation of its rejection of her party's legislation as bluff, saying the "Emperor has no clothes".
"The Irish State should have no hand act or part in the selling of these bonds," Ms McDonald said.
Last night, a debate on the matter was interrupted after around 40 people were removed from the public gallery.
Minister for Finance Paschal Donohoe told the Dáil last night that the Government could not support the Sinn Féin legislation as he had been advised such a measure would be inconsistent with EU law and therefore subject to legal challenge.
He said Opposition deputies had claimed the Central Bank was trading, selling and dealing in Israeli bonds, but the regulator's sole function was a technical assessment on the bond prospectus.
When he took his seat, several visitors in the public gallery shouted "shame" and "disgrace" at him, while others sang "free free Palestine".
After they were ejected, the Sinn Féin bill was supported by Labour, the Social Democrats and some Independent TDs.
In his closing remarks, Sinn Féin Spokesperson on Finance Pearse Doherty said legal advice from the Oireachtas Office of Parliamentary Legal Advisers indicated the bill was compliant with the Constitution, EU law and international law.
He contended the bill would prevent the Central Bank from approving the bond prospectus and Israel would therefore be obliged to apply to another EU member state to conduct such business.
Mr Doherty strongly criticised the Coalition for not allowing the bill to go to committee stage.
Watch: Dáil suspended during Israeli bonds bill debate last night
Legal advice provided to Sinn Féin by the Office of Parliamentary Legal Advisers at the Oireachtas found that a Member State is entitled as a matter of EU law to unilaterally restrict access to its financial services.
This is on foot of that Member State's obligation to comply with international law and/or ensure compliance with international law by third states such as Israel.
The advice states that it cannot be said for certain that the proposal would not be subject to EU infringement proceedings.
However, the legal opinion provides, at the very least, that a strong argument can be made that States are permitted to do so and that such a policy objective can be validly proposed.
The opinion concludes that a Private Members' Bill can provide for restricted access to its financial services on the basis of public policy grounds that are rooted in the Ireland’s fundamental interest in pursuing its international law obligations.
