New Zealand Prime Minister Helen Clark says she is not satisfied with Israel's response to a diplomatic row between the two countries.
The Israelis pleaded guilty but denied they were Mossad agents
Two Israeli men, who Ms Clark insists are spies, were jailed for passport fraud in Auckland on Thursday.
The Israeli foreign ministry said that it would do everything in its power to restore relations.
Ms Clark said this response did not amount to the full apology she was demanding.
Jewish graves at a cemetery in Wellington have been vandalised. Swastikas and Nazi slogans were gouged into and around 16 Jewish graves.
The head of the country's small Jewish community, David Zwartz, said he thought the attack was directly linked to the government's criticism of Israel.
"I think there is a direct connection between the very
strong expressions against Israel and people here feeling they can take it out on Jews," Mr Zwartz said.
"It seems to me Israel-bashing one day, Jew-bashing the
'Violation of sovereignty'
On Thursday, New Zealand imposed diplomatic sanctions on Israel over the activities of Uriel Zosha Kelman and Eli Cara.
The men deny that they are members of Mossad, the Israeli intelligence agency, but pleaded guilty to attempting to gain New Zealand passports illegally and working with organised criminal gangs.
They were sentenced to six months in prison for trying to obtain New Zealand passports illegally.
Prime Minister Helen Clark said that such acts were a violation of New Zealand sovereignty.
She said she had no doubt the two men were Israeli intelligence agents and that the case was "far more than simple criminal behaviour by two individuals".
The New Zealand government suspended official visits to Israel. Israeli officials now need visas to enter New Zealand and foreign ministry contacts have been suspended.
An Israeli Foreign Ministry spokesman said he was sure that Israel could repair the diplomatic damage and re-establish good relations with New Zealand, but did not specify how the Israeli government would go about it.
Ms Clark is insisting on a formal "government to government" apology or explanation.
"The ball is in Israel's court as to where it wants to move
from here," Ms Clark said. "Three months ago we asked for an apology and an explanation. That has not been forthcoming."
The two Israelis were arrested in March after they tried to collect a passport in the name of a New Zealand national who is a wheelchair-bound cerebral palsy victim.