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The reversal came as the European Union’s foreign policy chief, Federica Mogherini, was in town. The EU has taken a tough stance against settlements built on lands claimed by the Palestinians.Dan Balilty/The Associated Press

Prime Minister Benjamin Netanyahu on Wednesday cancelled a plan that would have banned Palestinian labourers from riding on the same buses with Jewish settlers in the West Bank, just hours after it was announced – an embarrassing about-face that reflected the tensions enveloping Israel's new government.

The inauspicious start for Mr. Netanyahu's hard-line government illustrated the difficulties that loom as it tries to advance a pro-settler agenda in the face of rising global outrage and domestic criticism.

The reversal came as the European Union's foreign policy chief, Federica Mogherini, was in town. The EU has taken a tough stance against settlements built on lands claimed by the Palestinians.

As the bus plan was unveiled, Israeli critics across the political spectrum derided it as racist, with one opposition politician comparing it to "apartheid." Israeli President Reuven Rivlin, a member of Mr. Netanyahu's Likud Party, called the plan "unthinkable" and said there had been "great damage" to Israel.

Mr. Netanyahu's new coalition, which was sworn into office last week, is dominated by settler sympathizers, and the busing plan, launched late Tuesday on a trial basis, had sought to separate settlers and Palestinians from travelling together through the West Bank.

The plan's mastermind, Defence Minister Moshe Yaalon, said it was connected solely to security. The settlers had complained of safety concerns and alleged harassment of female riders by Arab passengers.

"Every normal country is allowed, and especially in our security situation, to inspect those who enter and exit," Mr. Yaalon said, denying any racist intentions. "That is what this is about and nothing else."

But after the public uproar, Mr. Netanyahu told Mr. Yaalon it was "unacceptable" and the two decided to freeze the plan, an official in the Prime Minister's Office said, speaking on condition of anonymity because he was discussing internal communications. The official would not say when Mr. Netanyahu became aware of the plan or explain why he opposed it.

Thousands of Palestinians are permitted to enter Israel for work each day from the West Bank, usually to work in construction and other menial jobs.

They typically take Palestinian shuttle buses or private transportation to checkpoints before dawn, and cross into Israel after a security check. But when they return home, they don't need to go through the checkpoints and many take Israeli settler buses from Israel straight to the West Bank to save time.

The proposed change would have forced them to return home through the same checkpoint they entered and barred them from travelling back on buses alongside Israelis.

"We work on their houses. How do they want to prevent us from using buses?" said Mohammed Shatara, a Palestinian worker from the West Bank city of Nablus, as he crossed through the Eyal checkpoint. "We are human like them and this decision is racist."

Mr. Netanyahu's quick action reflected Israeli concerns about the country's image, which already is under pressure after years of stalled peace efforts and continued settlement construction.

Israeli opposition leader Isaac Herzog called the bus plan "a stain on the face of the country and its citizens." Writing on his Facebook page, he said, "It adds unnecessary oil to the bonfire of hate against Israel in the world."

"This is how apartheid looks," said Zehava Galon, leader of the dovish Meretz party.

Mr. Rivlin, whose ceremonial post is meant to serve as a moral compass for the country, commended Mr. Netanyahu for scrapping the plan. "It is important we remember that our sovereignty obligates us to prove our ability to live side by side," Mr. Rivlin said.

Israel captured the West Bank from Jordan in the 1967 Mideast war, and Palestinians claim the territory as part of a future state. Some 350,000 Israeli settlers live in the West Bank, alongside more than two million Palestinians. The international community considers the settlements illegal or illegitimate.

Wednesday's uproar gave a glimpse of what could lie ahead for Mr. Netanyahu and his new government.

The Israeli premier angered the United States and other key allies during the election campaign in March by saying he would not allow the establishment of a Palestinian state on his watch. Although he later tried to backtrack, the U.S. has reacted with skepticism.

With just a one-seat majority in the parliament, Mr. Netanyahu finds himself dependent on the pro-settler Jewish Home party as well as hard-liners inside Likud. These hard-liners support further settlement construction, and their opposition to peacemaking with the Palestinians has set the stage for likely clashes with Israel's Western allies.

At a joint appearance, neither Mr. Netanyahu nor Ms. Mogherini mentioned the failed bus plan. Ms. Mogherini stressed the close ties between Israel and Europe and assured Mr. Netanyahu that Europe is committed to preventing Iran from developing nuclear weapons.

Mr. Netanyahu used the opportunity to deflect some of the criticism of his new hawkish government.

"I don't support a one state solution – I don't believe that's a solution at all. I support the vision of two states for two peoples – a demilitarized Palestinian state that recognizes the Jewish state," he said.

Ms. Mogherini restated Europe's support for the establishment of a Palestinian state before entering a private meeting with Mr. Netanyahu. Some EU countries are pushing for settlement products to be labeled if they are sold in Europe.

Alon Ben David, an Israel TV commentator on defence affairs, criticized the country's leaders for being out of touch with international opinion.

"You really don't need binoculars today to see the political tsunami that is making its way to Israel's shores from Europe," he told Channel 10 TV.

Israeli civil rights groups lauded Mr. Netanyahu's reversal but criticized the government for even considering the plan.

Sarit Michaeli, spokesperson for B'Tselem, a human rights group, said the proposal drew attention to broader policies of separation and discrimination in the West Bank.

Israelis and Palestinians in the West Bank are subject to two sets of laws, different rules for land development and in some cases, even travel on separate roads, she said. Israeli settlers are permitted to vote in Israeli elections, while Palestinians are not.

"Even though this specific issue was put on hold, actually separation, segregation and discrimination have been around for a long time," she said.

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