Correction: A headline that appeared in print versions of this article incorrectly described the West Bank as disputed Israeli territory. The territory is occupied by Israel, with some areas under control of the Palestinian Authority. This version has been corrected.

Israeli left-wing activists demonstrate against a new law that bans boycotts of West Bank products. (Sebastian Scheiner/AP)

The boutique wine varieties produced in this Israeli settlement east of Ramallah are sold at quality stores at home and abroad and have garnered top prizes in local and international competitions.

The labels on the bottles say they are from Psagot, Israel, containing wine produced from vineyards planted on ancient limestone terraces in the “northern Jerusalem hills” and aged in French oak barrels stored in an ancient cave.

Yaakov Berg, the energetic founder and chief executive of Psagot Winery, says he is reviving the winemaking traditions of his biblical forefathers, and he shrugs off suggestions that the labels mask the wine’s origin in an Israeli settlement in the West Bank.

“This is a geographical definition, not political,” he says of the reference to the Jerusalem hills. “When it comes to wine, the geographical area is critical, like Napa Valley” in California. As for the reference to Israel, Berg said that he is subject to Israeli law and that his winery is built on state land.

Psagot wine and other goods produced in West Bank settlements have been thrust into the limelight since July 11, when the Israeli parliament enacted a hotly contested law that imposes penalties for publicly calling for a boycott against Israel or its settlements. The controversy is the latest in a long-running debate over the settlement enterprise, which opponents say is a stumbling block to a two-state solution to the conflict with the Palestinians.

Under the law, individuals, organizations or companies promoting a boycott of settlement products face lawsuits, denial of tax exemptions and other benefits from the state, and exclusion from bids for government work. The law protects a range of goods produced at the settlements, from food and beverages to cosmetics, plastics and furniture.

The law entitles Berg to sue individuals or groups that call for a boycott of his wine and to claim damages in court, a move he says he is considering. Since the passage of the bill, he said, some customers have told him that they would shun his product because it comes from a settlement, but others have put in more orders in a show of solidarity.

Critics of the legislation have responded with defiant calls to boycott settlement products, and civil rights groups are planning to challenge it in the Supreme Court as unconstitutional, arguing that penalizing calls for a boycott is a violation of free speech.

The anti-settlement group Peace Now named Psagot wine and other settlement products in an ad campaign to boycott them, linking their purchase to support of the settlers. The group is also promoting a Facebook drive — “Sue me, I boycott settlement products!” — that has drawn nearly 8,500 supporters and is intended to encourage mass disobedience of the law.

“For now, the law has had a boomerang effect, heightening the debate over the settlements,” said Hagit Ofran, a Peace Now leader, adding that the sponsors of the bill “managed to get many people angry.”

Hagai El-Ad, executive director of the Association for Civil Rights in Israel, which is leading the planned court challenge, called it “a clear-cut freedom-of-speech case.” El-Ad said Israelis have used boycotts as a legitimate protest tool on a variety of issues, most recently to force a lowering of the price of cottage cheese. “Why should it be legal to boycott cottage cheese, but illegal to boycott the occupation?” he said.

The law was sponsored by Zeev Elkin, a member of Prime Minister Benjamin Netanyahu’s Likud party, which has long supported the settlement effort as a rightful claim to the biblical Jewish homeland. Netanyahu told parliament last week that he approved the legislative initiative himself.

In a telephone interview, Elkin said that while Israel is fighting boycott calls against it abroad, it had failed to take action against similar calls inside the country. The purpose of the law, he said, is to provide legal recourse to people harmed by boycott campaigns that targeted them because of where they happen to live.

“It is legally prohibited to discriminate on the basis of religion, race, gender or nationality. Choice of residence is a basic right,” Elkin said. “I’m all for public debate, but the struggle can’t be waged on the backs of citizens.”

At the Psagot winery, Berg said his business was flourishing, with more than 100,000 bottles produced annually from the harvest of settlement vineyards across the West Bank. Along with boutique wine varieties like Berg’s, settlers have carved out a niche of organic food products, including mushrooms, goat cheese, olive oil and free-range eggs, which are sold in stores and served in restaurants across Israel.

The origin of the settlement products generally goes unnoticed by shoppers, and Berg asserted that for ordinary consumers it was not a point of contention. “It doesn’t interest most Israelis,” he said as a busload of visitors arrived for a winery tour.