The former Fugees singer had been scheduled to perform Thursday near Tel Aviv but faced a social media campaign by activists who urged her to boycott Israel over its occupation of Palestinian land.
Hill said that she had wanted to schedule a second show in Ramallah in the West Bank but that the logistics "proved to be a challenge."
"I've wanted very much to bring our live performance to this part of the world, but also to be a presence supporting justice and peace," she wrote on her website.
"It is very important to me that my presence or message not be misconstrued, or a source of alienation to either my Israeli or my Palestinian fans," she said.
Hill said she would "seek a different strategy to bring my music to ALL of my fans in the region."
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Activists had pressured Hill to cancel, with a campaign that quoted "Killing Me Softly" -- a cover song she is famous for -- to describe Israeli policies.
Israel has faced boycott calls by artists, academics and musicians including Roger Waters and Brian Eno, who hope that such cultural ostracization can change Israeli policies.
However, Israel's defenders have fought against the campaign and plenty of musicians have defied boycott calls to play in Israel in recent years including Paul McCartney and Elton John.
Hill came to prominence in the mid-1990s with the Fugees, who also featured Haitian American Wyclef Jean and incorporated elements of hip-hop and Caribbean music into R&B.
The Library of Congress recently inducted "The Miseducation of Lauryn Hill" -- her introspective 1998 solo album, written while pregnant -- into the National Recording Registry of important works.
After the album, Hill decided to drop out of the public eye. She later re-emerged with a variety of side projects and served a brief prison term over tax evasion.