A draft law that Fianna Fáil and the Greens want included in the programme for government would force the State to try to extradite and prosecute people from other jurisdictions for importing some Israeli goods, according to the Attorney General.
Fine Gael has cited advice from AG Séamus Woulfe to argue against the Occupied Territories Bill Fianna Fáil and the Greens want a new government to pass into law.
The bill, which was passed in the last Dáil and Seanad but blocked by Fine Gael on procedural grounds, would make it an offence to sell Israeli goods imported from the occupied territories in the Palestinian West Bank.
A conviction would carry fines of up to €250,000 or five years in prison.
Tánaiste Simon Coveney has argued the bill is illegal under EU law because trade with third countries falls within the EU's exclusive competence under single market rules. But Mr Woulfe's advice, seen by the Irish Independent, also warns that the State would find it impossible to investigate, prosecute or extradite a person who imports such goods.
Mr Woulfe, who was appointed by Fine Gael, argues the criminal offences set out in the bill are "quite vague" and enforcing them would be "impractical" as they would involve pursuing persons outside the jurisdiction for offences that are not illegal in other countries. He contends that the bill, if it became law, would be at risk of constitutional challenge.
The bill has been championed by Independent Senator Frances Black, who has legal advice which contends that because such goods are produced as a result of breaches of international law then it is justifiable to ban their importation.
The bill has strong cross-party support and has garnered global attention as Ireland would be the first EU country to end trade with Israeli settlements in the West Bank.
Fianna Fáil and the Greens are contesting Mr Woulfe's advice and the impasse has led to the issue being referred to the three party leaders.
Israel's ambassador to Ireland, Ophir Kariv, has described the bill as "the most extreme anti-Israeli piece of legislation in the western world outside of Iran".