Israel’s Government Threatens Ben and Jerry’s Ice Cream
Naftali Bennett warned the US firm's parent company, Unilever, that there would be legal and other consequences.
Ben & Jerry's said on Monday that the sale of its products in the West Bank and East Jerusalem was "inconsistent with our values".
Palestinian activists praised the move.
More than 600,000 Jews live in about 140 settlements built since Israel's occupation of the West Bank and East Jerusalem in the 1967 Middle East war.
Most of the international community considers the settlements illegal under international law, though Israel disputes this.
The BBC's Tom Bateman in Jerusalem says Ben & Jerry's is popular in Israel, its ice cream coming in special flavours to mark Jewish festivals or national events.
It is also sold in Israeli settlements - something that has seen activists in the US put pressure on the company, known for its progressive views.
Announcing its decision to end sales "in the Occupied Palestinian Territory", Ben & Jerry's said its partnership with its Israeli franchisee would expire next year and that it would "stay in Israel through a different arrangement".
Our correspondent says many Palestinians support such trade boycotts, but they are viewed with outrage by Israel's government and many Israelis.
Mr Bennett said he had spoken to Unilever CEO Alan Jope about the "clearly anti-Israel step" taken by the UK-based consumer goods giant's subsidiary.
"This is an action that has severe consequences, including legal, and [Israel] will take strong action against any boycott directed against its citizens."
Unilever said the decision was taken by Ben & Jerry's independent board, and that it remained "fully committed" to maintaining a presence in Israel.
The Israeli franchisee said it was unwilling to refuse to sell ice cream to Israelis in settlements and was legally prevented from doing so.
Israeli Foreign Minister Yair Lapid called Ben & Jerry's move a "disgraceful capitulation" to anti-Semitism and the Boycott, Divestment and Sanctions (BDS) movement, which calls for a complete boycott of Israel over its treatment of the Palestinians.
He said he would ask the 35 US states with anti-BDS laws to enforce them against the company.
BDS called Ben & Jerry's decision "a decisive step towards ending the company's complicity in Israel's occupation and violation of Palestinian rights".
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