Barenboim has been an outspoken critic of the Israeli settlements and of Israel's government since Rabin. He is also a supporter of Palestinian rights.
With respect to the Israel-Palestinian conflict, Barenboim has spoken about the need for both sides to begin to understand each other:
"There is no way Israel will deal with the Palestinians if the Palestinians do not understand the suffering of the Jewish people ... [N]ow fifty years after that we have to accept co-responsibility for Palestinian suffering. Until an Israeli leader is able to utter those words there will be no peace."
In an interview with British music critic Norman Lebrecht in 2003, he accused the Israeli government of behaving in a manner which was, "morally abhorrent and strategically wrong", and, "putting in danger the very existence of the state of Israel." 
As a gesture of solidarity with the Palestinians, Barenboim has performed in Ramallah although Israeli authorities warned him that it was dangerous.
In 1999, Barenboim jointly founded the West-Eastern Divan orchestra with Palestinian-American intellectual Edward Said, who was a close friend. It is an initiative to bring together, every summer, a group of talented young classical musicians from Israel and Arab countries. Barenboim and Said were among the recipients of the 2002 Prince of Asturias Awards for their work in "improving understanding between nations".
Barenboim wrote a book with Said, Parallels and Paradoxes, based on a series of public discussions held at New York's Carnegie Hall.In September 2005, Barenboim refused to be interviewed by uniformed Israel Defense Forces Radio reporter Dafna Arad, considering the wearing of the uniform insensitive to the Palestinians present. Then Israeli Minister of Education, Limor Livnat (Likud), was quoted as describing Barenboim as "a real Jew hater" and "a real anti-semite." 
In December 2007, Barenboim and 20 musicians from England, the United States, France and Germany, and one Palestinian were scheduled to play a baroque music concert in Gaza. Although they had received authorization from Israeli authorities, the Palestinian was stopped at the Israel-Gaza border and told that he needed individual permission to enter. The group waited seven hours at the border, and then canceled the concert in solidarity. Barenboim commented: "A baroque music concert in a Roman Catholic church in Gaza - as we all know - has nothing to do with security and would bring so much joy to people who live there in great difficulty."
On 12 January 2008, after a concert in Ramallah, Barenboim accepted honorary Palestinian citizenship, becoming the first Israeli citizen to be offered the status. Barenboim said he hoped it would serve as a public gesture of peace.Some Israelis criticized Barenboim's decision to accept Palestinian citizenship. The leader of the Shas party demanded that Barenboim be stripped of his Israeli citizenship.In January 2008, the UFO religion Raëlian Movement nominated Barenboim an "Honorary Guide" "for his actions towards more peace in the Middle East and for championing Palestinian's [sic] rights while being a citizen of Israel." .
In January 2009, Barenboim cancelled two concerts of the West-Eastern Divan Orchestra in Qatar and Cairo "due to the escalating violence in Gaza and the resulting concerns for the musicians’ safety", according to the BBC.