"Condemnation over Gaza attack"
Members called for the Government to "hold Israel to account for this illegal action" and to impose sanctions on the country until it "complies with international law and ceases perpetrating human rights abuses".
Two Bristol men were aboard the Freedom Flotilla of ships when the Israeli military opened fire on May 31. One of them, Cliff Hanley, spoke in support of the motion before last night's council debate.
He was joined by a number of pro-Palestinian protesters outside the council chamber, who want a boycott of all Israeli goods and companies in Bristol.
Mr Hanley said: "We question the morality of the council having money invested in Israeli banks or investment funds where it gains interest derived in any way over 60 years of ethnic cleansing of historic Palestine, the illegal occupation of the West Bank and the brutal starvation and slaughter of the people in Gaza."
Proposing the motion, Lib Dem councillor John Kiely (Easton) compared life in Gaza to Bristol during the Blitz.
The Conservatives put forward an alternative motion, with what they described as "less emotive language" and calling for Israel to "exercise restraint".
The amendment failed and while the Conservatives voted against the Lib Dem motion, the majority of the council approved it.