The private security giant broke the news as it announced its full-year results on Wednesday, telling its shareholders it intends to sell its G4S Israel business.
The news was hailed by BDS campaigners as a victory for their relentless efforts over the past few years.
"This it not just a victory for BDS, but for all pro-Palestinian activists who have worked hard for the last three years to convince companies and organisations to drop G4S," Samah Idriss, co-founder of the Campaign to Boycott Supporters of Israel in Lebanon, told The New Arab.
The campaign was one of the groups putting pressure on G4S, which also has operations in Lebanon.
Although G4S did not explicitly admit to the link between its decision and BDS' efforts, citing financial losses, The Financial Times reported that G4S was "extracting itself from reputationally damaging work".
|This it not just a victory for BDS, but for all pro-Palestinian activists
-Samah Idriss, Campaign to Boycott Supporters of Israel
G4S announced in 2013 that it would end its role in illegal Israeli settlements, checkpoints and one Israeli prison by 2015 - but did not implement the withdrawal.
In 2014, G4S announced it "did not intend to renew" its contract with the Israeli Prison Service when it expired in 2017, but is also yet to implement that decision.
"This announcement is a good sign that BDS is working but we will not let G4S get away with it," said Joey Ayoub, a Lebanese writer and blogger.
"It is still complicit in human rights abuses in the context of the privatisation of British government services, all of which has been extensively documented by groups such as War On Want and others," he added.
Since 2010, G4S has lost contracts worth millions of dollars in more than a dozen countries following BDS campaigns protesting its role in Israeli prisons.
Last week, the United Nations Children's Fund (UNICEF) in Jordan ended its contract with G4S following a campaign by BDS activists in the country and across the world.
Their lost clients include private businesses, universities, trade unions, and UN bodies.
The Bill Gates Foundation divested its $170m stake in the company following protests at its offices in Seattle, London and Johannesburg.
G4S also has contracts with the Israeli government to provide equipment and services to checkpoints and the separation wall, as well as crossings that enforce the siege of Gaza.
According to the BDS movement website, "by helping Israel to run prisons and 'interrogation centres', G4S is participating in Israel's use of torture and mass incarceration of more than 6,000 Palestinians as a way to discourage Palestinians from resisting Israel's regime of occupation, settler-colonialism and apartheid".