The skit on Netta Barzilai's Toy was broadcast on Saturday during a primetime satirical show.
The parody drew on violence on the Gaza border, where 60 Palestinians were killed by Israeli forces.
The show's producers insist the song did not target the Jewish community.
The song, performed on Sanne Wallis de Vries's show by Martine Sandifort, began with an imitation of Netta's trademark chicken noises but then used a backdrop of footage involving Palestinian protests against Israeli forces.
Sandifort sang of Israel building walls that even President Donald Trump could only dream of, but then suggested it was cashing in on the opening of the new US embassy in Jerusalem.
The chicken-clucking of the original song is replaced with further references to money: "With your ching-a-ling and your ping-a-ping, with your dollars and cents and your pecunia (finance), your ching, kerching-kerching."
Israeli ambassador Aviv Shir-On told Dutch newspaper NRC that the content of the song was crude and offensive and that the programme "packages anti-Semitic stereotypes as jokes".