Israel has denounced as "shameful" Airbnb's decision to withdraw its listings from homes in Israeli settlements in the occupied West Bank.
Its tourism minister said Israeli authorities would back legal challenges lodged by settlers against the US firm.
Airbnb said it had made the decision because settlements were "at the core" of the Israeli-Palestinian conflict. The move, which affects 200 listings, has been widely praised by Palestinians and their supporters.
Jewish settlements in territory occupied by Israel in the 1967 Middle East war are considered illegal under international law, though Israel disputes this.
Human Rights Watch called Airbnb's decision "a positive step" and urged other tourism companies, such as Booking.com, to follow suit.
In a report released on Tuesday, the New York-based group said "Israelis and foreigners may rent properties in settlements, but Palestinian ID holders are effectively barred".
It said this was the only example the rights body could find "in which Airbnb hosts have no choice but to discriminate against guests based on national or ethnic origin".
Airbnb has come under fire in the past by Palestinian officials and human rights campaigners for allowing listings of homes to rent in Israeli settlements.
However, Israeli leaders and organisations have widely condemned the latest move.
The Yesha Council, which represents Israeli settlers, accused Airbnb of becoming "a political site" and said the decision was "the result of either anti-Semitism or capitulation to terrorism, or both".
And the Simon Wiesenthal Centre, a US-based Jewish human rights organisation, urged Jewish communities around the world to boycott Airbnb in the wake of its decision.
Gidi Kelman, who owns an Airbnb-listed property in the occupied West Bank, told the BBC it was a hypocritical decision.
"I didn't see any action against Turkey when they were bombing the Kurds," he said, arguing that "lots of countries" have conflicts.
"I don't think an international company should be dealing with politics," he said.
The issue of settlements is one of the most contentious areas of dispute between Israel and the Palestinians.
More than 600,000 Jews live in about 140 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem.
The Palestinians see them as a major obstacle to peace and a barrier to a hoped-for Palestinian state on land which they occupy.
Israel says such an argument is a pretext for avoiding direct peace talks, and that the fate of settlements should be negotiated in accordance with peace accords signed with the Palestinians in 1993.