Yet to be released in English, Borderline is the story of an Israeli Jewish woman and a Palestinian Muslim man who meet in New York, fall in love and then part ways. She returns to Tel Aviv and he to Ramallah.
The Education Ministry said it banned the book from its literature list to maintain the "identity and heritage of students in every sector".
Ministry officials were worried that the "intimate relations between Jews and non-Jews threatens the separate identity", reported Israeli newspaper Haaretz, which broke the story.
Some of Israel's more liberal lawmakers called it racist and a gross attempt at censorship.
"Censorship started long ago. Now it aims to preserve the purity of blood," wrote Knesset member Tamar Zandberg on Twitter.
Some high school teachers said they would use the book in class regardless, and bookstores countrywide reported a sudden increase in sales of Borderline.
Education Minister Naftali Bennett, head of the ultra-nationalist Jewish Home party, responded that he strongly supported the ban mostly because the book criticises Israeli soldiers, presenting them as war criminals.
But, in an interview with Israel's Channel 2 News, Bennett said: "Do we really need a book that talks about the romance between a Palestinian prisoner and a Jewish woman?" Bennett admitted that he had not yet read the book.
Nof Nathanson, deputy editor of Time Out Tel Aviv, explained the decision to make the video: "When the story came out last Thursday we were already working on another big project. But during our editorial meeting this week we decided that we needed to take action against this decision. We immediately started working on the video."
Nathanson said the video had already gone viral.
So far, he said, it had received mixed reviews, with positive comments on Time Out Tel Aviv's Facebook page and some expressing shock at confronting such a taboo subject in this way.
Bloomberg,