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The store apologized and said that "as of today the eight Israeli wines will be back in our assortment" and that "in this matter, which was about a European Union recommendation, we acted too quickly and insensitively."
The EU decision earlier this month to begin labeling settlement products infuriated Israel, which says the move is unfair and discriminatory, and has linked it to a growing international boycott movement.
Netanyahu said earlier Sunday that the German department store's actions constituted "a boycott in every respect," adding that KaDeWe was once owned by Jews before the Nazis seized it. He called on the German government, which opposes the product labeling, to act on the matter.
Critics of the boycott movement say it is anti-Semitic and meant to delegitimize the Jewish state as a whole. Many have compared it to the Nazi boycott prior to and during WWII, when Jewish academics were kicked out of universities and Jewish businesses were boycotted.
Supporters of the movement say it is modeled on efforts to boycott Apartheid South Africa. They say it is aimed at pressuring Israel to withdraw from territories seized from Jordan in the 1967 war that the Palestinians want for their future state.
The Palestinians and virtually the entire international community view Israeli settlements as illegal or illegitimate, and the issue has long been one of the chief obstacles to reaching a peace agreement.
Israel says the fate of the settlements should be resolved in peace talks along with other core issues like security and borders.
