Costello, who was due to play two shows in Caesarea on June 30 and 31, posted a message on his website in which he announced that he would scrap the concerts in protest at what he termed the intimidation and humiliation of Palestinians by Israel.
"I must believe that the audience for the coming concerts would have contained many people who question the policies of their government on settlement and deplore conditions that visit intimidation, humiliation or much worse on Palestinian civilians in the name of national security," Costello wrote.
The singer’s withdrawal follows similar moves by other high-profile musicians, including Santana and Gil Scott-Heron.
Costello wrote: "It has been necessary to dial out the falsehoods of propaganda, the double game and hysterical language of politics, the vanity and self-righteousness of public communiqués from cranks in order to eventually sift through my own conflicted thoughts."
While acknowledging that he was unlikely to be invited to Israel again, Costello said he could not have imagined a better time to announce the decision.
"Sometimes a silence in music is better than adding to the static," he said.