The Government has defeated a Social Democrats motion demanding the Irish Central Bank not facilitate the sale of Israeli war bonds by 85 votes to 71.
Two Independent deputies who normally support the Coalition, Barry Heneghan and Gillian Toole, voted against Government again.
Last month, both TDs sided with the Opposition when they backed a similar motion from Sinn Féin.
On that occasion, they reaffirmed their support for the Government and that they will continue to support the Coalition in the time ahead.
Mr Heneghan said it was a matter of conscience and Ireland should not facilitate the sale of bonds that help fund the devastation in Gaza.
Taoiseach and Fianna Fáil leader Micheál Martin told his parliamentary party that he completely rejects the Opposition accusation that the Government is complicit in Israel's genocide in Gaza.
He said the behaviour of the Israeli government in prosecuting its war in Gaza is beyond any moral compass.
The Taoiseach told his TDs, Senators and MEPs that the focus is now on the EU-Israel Trade agreement over the coming weeks, which is due to be reviewed.
The Irish Government argues Israel is in breach of Article 2 of the agreement, which binds both sides to human rights and international humanitarian law.
On the issue of Israeli bonds, TDs and Senators are said to have spoken of the complexity of explaining the legal limitations on the Government to constituents who felt deeply on the issue.
Speaking to a meeting of the Fine Gael parliamentary party before the vote, Minister for Finance Paschal Donohoe said the Opposition want the Government to tell the Central Bank what to do, even though it was independent.
Minister Donohoe said that Government cannot introduce legislation that cuts across the independence of the Central Bank, it would not be legal and would not work.
The Central Bank will be contacted by Israel in late summer over whether it wants Ireland to continue to facilitate the sale of its war bonds - but any decision will be up to Israel rather than Irish officials, TDs have been told.
The Central Bank's director for capital markets and funds, Gerry Cross, confirmed the timeline, saying the next renewal date for the scheme is in September and that the bank expects to be contacted "a number of weeks" before then.
Speaking during a meeting of the Oireachtas finance committee, Mr Cross was asked by Fianna Fáil TD Shay Brennan when the current system ends and if it will be renewed.
In response, Mr Cross said this date is in September and that while "there's no fixed rule, where the issue is renewing we'd expect to hear [from the issuer client] a number of weeks in advance".
Asked by Deputy Brennan if the Central Bank has ever "refused" to renew such a process outside of issues such as existing sanctions or insufficient disclosures, Central Bank governor Gabriel Makhlouf said he was not aware of any such situation.
Under further questioning from Fine Gael TD Edward Timmins, Mr Makhlouf said "at the end of the day if the issuer [Israel] discloses everything then we are required to approve it".
Asked by Deputy Timmins if Ireland can choose at that point to transfer responsibility for facilitating the sale of the war bonds, Central Bank deputy governor for financial regulation, Mary Elizabeth McMunn, said the issuer rather than Central Bank officials can request a transfer.
The officials were speaking during a lengthy Oireachtas finance committee meeting organised to discuss the ongoing debate over the Central Bank of Ireland facilitating the sale of Israeli war bonds.
Asked by Sinn Féin's finance spokesperson Pearse Doherty about whether he believes "what is happening in Gaza is genocide", Mr Makhlouf and Mr Cross said they are experts in finance and do not comment further.
'The Central Bank is a creature of law'
Mr Makhlouf - who stressed in his opening statement to the committee that he is "absolutely appalled" by what is happening in Gaza - said "we have to operate within the tasks available to us", specifically EU financial sector laws.
Asked by Social Democrats deputy leader Cian O'Callaghan to clarify if "the genocide convention does not apply to the Central Bank", Mr Makhlouf said "what I am saying is, the way the law works, the Central Bank is a creature of law, set up by law, and given certain tasks".
He disagreed with Deputy O'Callaghan about whether the genocide convention or the prospectus regulation which acts as the framework for the facilitation of Israeli war bonds took precedence, saying: "We're governed by what is put down in the prospectus regulation."
Asked again by Deputy O'Callaghan if "you are seriously suggesting there isn't a serious breach of international human law in terms of what Israel is doing in Gaza", Central Bank official Mr Cross added: "This is what the European regulation asks us to do."
During a separate discussion, Labour's finance spokesperson Ged Nash asked if any Central Bank members of staff have raised concerns over the group's facilitation of Israeli war bonds.
Mr Makhlouf paused, before answering that: "We try and have a team of people in the bank who reflect society, and the people in the bank have the sorts of views reflected by society."
He said "to be clear", these views range from people who are sympathetic to one side of the conflict, and those who are sympathetic to the other side, saying these views from staff are "managed with care, empathy, and understanding - we do it with care".
In a wrap-up discussion of the committee, Central Bank official Mr Cross told Sinn Féin TD and committee chair Mairead Farrell that the Central Bank is managing the situation.
In response, Deputy Farrell said: "I think the fundamental issue is we don't want any Irish involvement in this."
'Narrow legal interpretation'
Independent TD Catherine Connolly said the "narrow legal interpretation" taken by the Central Bank was "unacceptable".
She said: "We’re watching genocide and as we watch, we’re all complicit in a genocide and there’s an obligation on us to take action.
"So when we look at the bonds, it is unacceptable the narrow legal interpretation that’s been taken, even within the existing law in Ireland and Europe, there is flexibility for them under international law and public policy grants.
"And if that’s not the case and I’m wrong, I’ll happily be corrected but I’d rather be wrong and take action then watch the slaughter that’s going on in our name."
'Ireland cannot be a conduit for blood money'
The Central Bank's meeting with the committee took place on the same day as the Dáil votes again on whether to ban the facilitation of Israeli war bonds in Ireland.
The cross-party motion was tabled during the Social Democrats speaking time this morning, with a Government counter-motion outlining the actions the Coalition has taken so far due to be voted on tonight.
During this morning's debate, Social Democrats deputy leader Cian O'Callaghan said "genocide, let's be clear, is taking place with the sale of Israeli war bonds" and that the Central Bank should "stop facilitating these bonds".
He was supported by a number of party colleagues, including Gary Gannon, who said he believes the Government's view is that "genocide is happening but Ireland must do nothing to affect GDP".
Sinead Gibney said whatever the rules may be "we have to try" as it could create a "domino effect" among other countries.
Sinn Féin Spokesperson on Finance Pearse Doherty described the Government's position as "shameful", alongside party colleague Sean Crowe, who responded to recent Coalition comments that Ireland's position is leading to tangible results.
"Gaza is flattened to the ground, people are starving, and you say you're getting tangible results?," he said.
"Ireland cannot be a conduit for blood money."
Labour TD Ged Nash said regardless of EU rules Ireland should not facilitate Israeli war bonds and should instead "challenge the state of Israel to take us to the international courts", a view repeated by Solidarity-People Before Profit TD Ruth Coppinger and Independent TD Catherine Connolly who said Government is engaged in "cognitive dissonance".
Responding to the Opposition's remarks, Mr Donohoe said there were "far more issues we agree on than do not agree on", before saying if he "refrained from charges of naivety" against some opposition TDs, then he would like them to "refrain from charges or complicity or collaboration" against Government.
Minister Donohoe said Government is in his view working "relentlessly" to "build a diplomatic coalition" on the issue, and outlined a number of measures the coalition has taken so far.
Responding to the key point being discussed, he said: "I want to again set the record straight, the Central Bank does not oversee the sale of Israeli war bonds" and that the opposition motion "wouldn't be consistent with EU law, it would undermine our obligations with the EU".
That view was also outlined by a number of Government TDs, including Fianna Fáil TDs Paul McAuliffe and Robert Troy.
