The Miami-based chain, owned by UK firm Diageo DGEL, said it had ordered the Israeli franchisee to remove the Burger King logo from the restaurant immediately.

The dispute focused on a branch of Burger King in the fast growing settlement of Ma'ale Adumim - built on disputed land occupied by the Israelis during the 1967 war.

The Palestinians have long argued that such settlements are illegal.

The opening of the restaurant sparked outrage from American-Arab and American-Muslim groups who said it amounted to support for the Israeli occupation.

Breach of contract

Burger King said the Israeli company, Rikamor Ltd, had falsely stated that the restaurant would be located in Israel and as such was in breach of contract.

Buger King says it does not wish to be seen taking sides

The corporation, the world's second largest food chain after McDonalds, said it would not approve the opening of restaurants in the West Bank at such a sensitive time in the peace process.

"Burger King regrets that its name and reputation have become entangled in matters that have nothing to do with providing quality food and service to its customers," said David Williams, Burger King regional president.

The company added that is has "no interest in taking sides in the Arab-Israeli peace process, except to welcome its early and mutually acceptable outcome."

Arab outrage

Earlier this month, the case attracted the attention of the Arab League which said it would discuss the case at a meeting for foreign ministers in September after a request from Yasser Arafat's Palestinian Authority.

Ma'ale Adumim is one of the West Bank's largest Israeli settlements

The growing row had led to calls for a boycott of Burger King, which has 130 restaurants in the Middle East and aims to move soon into Lebanon and Jordan.

Shortly after the Burger King announcement Khalid Turaaniof of the American Moslems for Jerusalem congratulated the corporation for "doing the right thing."

"Corporations should not do business and investment on land that is occupied by force and whose original owners have been displaced into refugee camps," he said.