Israel is pulling out of a $50 million deal with US TV evangelist Pat Robertson after he said Ariel Sharon's stroke was divine retribution.
Mr Robertson is an influential figure in US politics
Tourism Ministry spokesman Ido Hartuv said Israel would not sign a contract with Mr Robertson to build a biblical theme park by the Sea of Galilee.
Mr Robertson suggested on his popular TV show the stroke was a punishment for Israel's withdrawal from Gaza.
His remarks were condemned by the US government and American Jewish groups.
Mr Robertson was leading a group of evangelical Christians hoping to build the Galilee World Heritage Park.
The centre was expected to cover nearly 35 acres (14 hectares) north-east of the Mount of Beatitudes, where Jesus is believed to have delivered the Sermon on the Mount.
It would have had a park, an auditorium, a Holy Land exhibition, outdoor amphitheatres, information centre and a media studio.
The Israeli government had tentatively agreed to provide land and infrastructure for the centre in the hope of generating millions of dollars from tourism.
But relations soured when Mr Robertson said God wanted Israel to be whole and undivided and had therefore punished Mr Sharon for Israel's pull-out from the Gaza Strip last year.
"You read the Bible: This is my land, and for any prime minister of Israel who decides he's going to carve it up and give it away, God says no, this is mine," he said last week.
Mr Hartuv said his government was furious with Mr Robertson's remarks.
"We were due to sign a contract in the near future with Mr Roberson for the construction of a new Christian heritage centre in the Galilee," he told the AFP news agency.
"We, as the State of Israel, cannot accept what he said and we will not do any business with him or with anyone else who agrees with his view."
But Mr Hartuv insisted Israel had not rejected outright the idea of building the centre.
"The contract is still open - just not with Mr Robertson."
"If there are other Christian leaders, they are most welcome to sign a contract to bring Christian tourists to the state of Israel."
Mr Robertson is no stranger to controversy.
He was forced to apologise last year for calling for the assassination of Venezuelan President Hugo Chavez.