Irish senators voted in favor of the Control of Economic Activity (Occupied Territories) Bill by 25 votes to 20 on Wednesday.
The proposed law, unprecedented for an EU member, was introduced by an independent senator, Frances Black, and supported by all the major political parties, except the governing Fine Gael.
The bill aims to make it an offence to import or sell goods or services from Israeli settlements.
It now goes to a vote in the lower house of parliament, which is expected to take several months, and will also undergo further scrutiny in a senate committee.
"We may have a long path ahead of us," said Black. "But I believe ... we've made the case clearly." Calling Israeli settlements a "war crime," she compared her proposal to Irish efforts to oppose apartheid in South Africa, adding Ireland "will always stand on the side of international law, human rights and justice."
The Irish government has said the bill would be unworkable and has instead called for a European Union response. The EU, which criticizes settlement building, did introduce rules in 2015 calling for products from settlements to be clearly labeled as such.
Irish Foreign Minister Simon Coveney said on Wednesday that it risked "fanning flames" in the Middle East.
"I respect this house and its decision but respectfully disagree," he said. "The absurd in the Irish Senate's initiative is that it will harm the livelihoods of many Palestinians who work in the Israeli industrial zones affected by the boycott," he said.
Israel irked, PLO pleased
Israeli foreign ministry spokesman Emmanuel Nahshon said the vote would have "a negative impact on the diplomatic process in the Middle East."
"Israel will consider its response in accordance with developments regarding the legislation," he said.
Israel summoned the Irish ambassador for clarification over the proposed legislation when it was first introduced in January.
Saeb Erekat, Palestine Liberation Organization secretary-general, praised the move. "This courageous step builds on the historic ties between Ireland and Palestine, as well as it shows the way forward for the rest of the European Union," he said.
Fadi Quran, Palestinian senior campaigner at pressure group Avaaz, said July 11 was now "Palestine's St. Patrick Day."
jbh/msh (AFP, AP)