Dorit Rabinyan's "Gader Haya," which means "Borderlife" in English, was left off courses last week in a bid to avoid encouraging relationships between Jews and Arabs, sparking a ferocious backlash by Israeli cultural figures and a buying frenzy.
The country's main fiction chart announced on Friday that the book had shot to the top as a bestseller in book stores and online.
The chart does not provide numbers but Rabinyan's agent said over 5,000 copies had been sold in a week, a huge figure in Israel's small market with many book stores selling out.
New deals to sell the rights in Hungary, Spain and Brazil have been discussed, while publication in the US, France and other countries where translation deals had already been agreed will be sped up, the agent said.
Reflecting on the controversy, Rabinyan said that while she was "worried" about the future of Israeli democracy, she had been encouraged by the support she received.
"I think this whole march to bookstores is a demonstration," she told AFP. "It is not only my fans that buy Borderlife, it is the fans of Israeli democracy.
"By buying my novel they reconfirm their trust and belief in Israel's liberalism, in Israel's freedom of choice and speech."
Borderlife, published in 2014, is 43-year-old Rabinyan's semi-autobiographical story of an Israeli woman who meets and falls in love with a male Palestinian artist in New York. The two later part ways as she returns to the Israeli city of Tel Aviv and he to Ramallah, in the Israeli-occupied West Bank.
Relationships between Israeli Jews and Palestinians are extremely rare and are frowned upon by large parts of both societies.
The book was among the winners of the Bernstein Prize for young writers, an annual Israeli award for Hebrew literature.
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After requests to include it in the high school curriculum by a number of teachers, a committee initially backed the book, but was later overruled by senior ministry officials.
Among the reasons given was that "intimate relations between Jews and non-Jews threatens the separate identity," according to the protocol of a parliamentary debate on the issue.
This provoked fury from left-wing Israelis and cultural figureheads, many of whom have long been critical of Prime Minister Benjamin Netanyahu, who formed a new right-wing government following his re-election in May.
In one video shared on social media in reaction to the controversy, Arabs and Jews kiss on camera to break what they call a taboo in Israeli society.
Rabinyan describes herself as a "proud Zionist" -- the Jewish political movement for creation and consolidation of Israel as a Jewish state -- but at the same time said pretending such relationships don't exist would be foolish.
"Literature is a mirror," she said. "(My critics think) if they eliminate the mirror maybe the reality will vanish as well."
"They see Palestinians as a mass, and (the Palestinians) see us as a mass as well. To look into each other's eyes, as happened between my characters, is very rare for an Israeli to experience."
The education ministry, in a statement on Thursday, appeared to row back from its previous position, stressing that the book was not totally banned from the curriculum.
"The book wasn't 'disqualified', but merely not included among the books studied" in the extended high school literature programme, it said.
The ministry added that while teachers were still permitted to study the book with their students, it wouldn't be included in the final exam.
The novel is the latest cause celebre in longstanding clashes between Netanyahu's right-wing government and cultural figures.
In June, Education Minister Naftali Bennett, leader of the rightwing Jewish Home party, pulled state funding from an Arab play which he alleged showed a Palestinian attacker in a sympathetic light.
The country's most famous living author, Amos Oz, declared in November he will not attend events at Israeli embassies across the globe due to the government's "radical" policies.