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Airbnb said it will remove property listings in Israeli West Bank settlements from its platform.
Announcing the decision Monday, the company said it had "wrestled with the issue and … struggled to come up with the right approach."
"In the past, we made clear that we would operate in this area as allowed by law," Airbnb said in a statement. "We did this because we believe that people-to-people travel has considerable value and we want to help bring people together in as many places as possible around the world."
The settlements in the West Bank are considered illegal by most world powers, although Israel disputes this. Palestinians see the settlements as obstacles to their goal of establishing an independent state.
According to Airbnb, there are around 200 properties in the occupied West Bank listed on its platform. After a considerable evaluation process, the firm made the decision to remove those listings.
"We know that people will disagree with this decision and appreciate their perspective," Airbnb said. "This is a controversial issue. There are many strong views as it relates to lands that have been the subject of historic and intense disputes between Israelis and Palestinians in the West Bank.
"Airbnb has deep respect for those views. Our hope is that someday sooner rather than later, a framework is put in place where the entire global community is aligned so there will be a resolution to this historic conflict and a clear path forward for everybody to follow."
In a statement emailed to CNBC Tuesday, Israeli Tourism Minister Yariv Levin slammed Airbnb's decision as "discriminatory" and called on the company to overturn the move.
Levin said it was "a disgraceful and miserable decision, and a disgraceful surrender by the company."
The tourism minister also told CNBC he had ordered his office to formulate immediate measures to limit Airbnb's activity throughout Israel.
He added that he had instructed his ministry to implement a special program to encourage tourism and accommodation in vacation apartments across the West Bank.
However, Badil, a non-profit that works to promote the rights of Palestinian refugees, said Airbnb's decision was an "important move."
"Airbnb's step to end its business in illegal colonies, built on the land of the indigenous Palestinian people, is an important move towards ending corporate complicity in the Israeli apartheid colonial regime," a spokesperson told CNBC via email.
"This partial victory should trigger other businesses to abide by their obligation to ensure comprehensive compliance with international law and human rights principles."
U.S. law permits companies to do business in the territories at the center of the Israel-Palestine conflict.
Airbnb has a presence in 191 countries and regions and operates in more than 81,000 cities.