During the annual American Israel Public Affairs Committee (AIPAC) on Monday, Pompeo said that the U.S. will take action against the UN Human Rights Council "blacklist" of the businesses working in Israeli settlements in the West Bank.
"Pompeo chose to criticize the parties that criticize the American bias and champion international law and legitimacy," said the Foreign Ministry in a statement.
"He poured his outrage on the UN Human Rights Council and threatened to carry out punitive measures to all those who harm American companies working in settlements," it said.
The ministry warned that Pompeo's remarks undermine any chance for achieving peace based on the two-state solution and on international terms of reference.
Palestinian politicians have heavily criticized the Trump administration over the two years, accusing Washington of blatantly supporting Israel's crimes against the people of Palestine.
U.S. President Donald Trump unveiled his long-awaited "Deal of the Century" peace plan late last year, despite its rejection by the Palestinian leadership. It has yet to be implemented because the Palestinian leadership has unilaterally rejected Trump's proposal.