A senior UN official resigned on Friday after the secretary general asked her to remove the report, published by the United Nation's Economic and Social Commission for Western Asia (ESCWA), from the internet.
UN Under-Secretary General and ESCWA Executive Secretary Rima Khalaf said she was leaving after "powerful member states" had pressured the world body and its chief with "vicious attacks and threats".
The UN is "incapable of taking a stand" and the debacle over the report proved it cannot be counted on "to defend human rights in our region," he said.
ESCWA, which comprises 18 Arab states, published the report on Wednesday and said it was the first time a UN body had clearly charged that Israel "has established an apartheid regime that dominates the Palestinian people as a whole".
Israel fiercely rejects the allegation, often directed at it by its critics.