Taoiseach Micheál Martin has said that extending the scope of the Occupied Territories Bill to include services is "not implementable".
The text of the legislation, which is to prohibit the import of goods from Israeli settlements in the occupied Palestinian territories, was passed by the Cabinet this morning and is set to be enacted within weeks.
Speaking to reporters before the Cabinet meeting, Mr Martin said that including services in the bill could potentially damage Ireland.
He said that it could do so "more than anybody else in terms of potential impacts on US multinationals based here back in America.
"We need to be realistic and need to be honest with people in respect of what we can achieve via this legislation," he said.
The Taoiseach described the bill as "further initiative in a long line of decisions the Irish Government has taken, from the recognition of a Palestinian state to intervention in the South African legal case on genocide to the ICJ, respect UN resolutions and so forth".
In a statement following the Cabinet meeting, Minister for Foreign Affairs and Trade Helen McEntee welcomed Government approval of the text of the Israeli Settlements (Prohibition of Importation of Goods) Bill.
The coalition is aiming to have the legislation enacted before the summer recess in July.
The minister told colleagues that Ireland has long advocated for a peaceful resolution to the conflict between Israelis and Palestinians.
Speaking to RTÉ's News at One, Minister McEntee said that while this legislation "won't change the decisions or the actions by the Israeli government", everything must be done to try to achieve the overall objectives of "a peaceful solution, a two-state solution".
She also urged strong action at a European level: "... In tandem to this legislation I will continue to advocate for Europe to act collectively to respond to not just the increase in settler violence and expansion but the other actions that are taken in Lebanon, be it in Gaza or indeed the reintroduction of the death penalty."
"If you look at goods or trade more generally in the occupied territories, if you were to ban that across the EU you're obviously talking about a much bigger percentage, so we are very clear the actions that we are taking here it is in solidarity with the Palestinian people."
Watch: Helen McEntee says she hopes the OTB legislation will be enacted by summer recess
Under the legislation before Cabinet, the importation of goods originating in the settlements will be an offence under section 14 of the Customs Act 2015.
The Government believes this is in keeping with an International Court of Justice opinion, issued in 2024.
It urged states to take steps to prevent trade that assists in the maintenance of the illegal situation created by Israel in the occupied Palestinian territories.
Read more:
Ireland calls for EU ban on trade with occupied territories
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Bill is a 'partial ban,' says Senator
Senator Frances Black, who first introduced the legislation, has said that the Government has announced "a partial ban" on trade with illegal Israeli settlements.
Senator Black said that the Government's bill "omits the majority of Irish trade" in services such as tech, and "undermines the scope of the legislation".
She said that she will be working with opposition parties to table amendments to include services when the bill is before the Dáil in the coming weeks.
Labour Party leader Ivana Bacik has welcomed the Government's decision to proceed with the Occupied Territories Bill but expressed her disappointment that the proposal does not include trade in services.
The Dublin Bay South TD said there was a risk the Government's plans could be more symbolic rather than meaningful or impactful as a result.
Speaking to reporters, Ms Bacik said she intends to raise this matter in the Dáil.
Meanwhile, Green Party leader Roderic O'Gorman has said that services must be included in the bill.
Speaking to reporters, he said that the Government was making "a political call" to weaken the bill by not including services.
"Maybe we're kind of coming to the actual nub of the issue now, that it is not a legal issue," he said.
"This is a political call, and the political call is we can annoy the Trump administration a little bit by including goods, but not that next little bit by including services.
"I don't accept that argument."
Mr O'Gorman insisted that the bill "must be passed, including services as well", something he said there is no legal impediment to doing.
People Before Profit TD Richard Boyd Barrett said the Government's proposal would gut the original bill by not including services, adding that services made up 70% of trade with Israel.
He said the inclusion of goods might not even include all goods.
Taoiseach Micheál Martin said Deputy Boyd Barrett wanted an Israeli boycott. He said the Deputy was campaigning and attacking the Government rather than explaining what was proposed.
He also said that thousands of workers in Ireland would be affected by a full Israeli boycott. Mr Martin defended the Government's response, saying Ireland was one of the few EU states who had stood up on the issue.
