Members of the Bayit Yehudi party eventually walked out during Martin Schulz's speech to the Knesset, the Jerusalem Post reported.
Schulz, a German, praised the rise of Israel since the genocide of World War II, saying the country "is the hope of a people to live freely in its homeland. It is hope turned reality, a dream of humanity."
Expressing gratitude for being allowed to speak in German, he added that while the Arab Spring had created political unrest, the European Union "would always stand by those who commit to democracy and human rights."
Members of Bayit Yehudi, a pro-settlement party, heckled Schulz when he spoke of a two-state solution with Palestinians, telling the Knesset members that construction of settlements in the West Bank was "a hurdle to a peaceful solution."
All of Bayit Yehudi's members walked out after Schulz quoted former Israeli prime minister Yitzhak Rabin as saying "peace is made with enemies, not with friends."
Naftali Bennett, chairman of Bayit Yehudi, later demanded Schulz apologize, saying he had "uttered two lies during his speech which were introduced to him by Palestinians."
Bennett took exception to Schulz's comment that the average Palestinian used only 17 liters of water a day compared to 70 by an average Israeli.
"Unfortunately, nobody bothered to protest [these statements] or to correct him," Bennett wrote on his Facebook page. "I will not accept the deceptive preaching of morality to the people of Israel and the Israeli Knesset. I certainly won't accept it in German."