The ad on Pizza Hut Israel's Facebook page was deleted and the parent company issued a statement of apology, stating that the post was "completely inappropriate".
Erez Rubenstein, a partner at the Israeli advertising company behind the ad, confirmed his firm was dismissed and said the Facebook post was regrettable in hindsight.
"We didn't mean to offend anybody," he said, according to AP.
Pizza Hut International's Middle East Twitter account said on Tuesday the ad "does not reflect the values of our brand".
The online statement came in response to a Twitter campaign to boycott the company, which operates in Israel, the West Bank and around the Arab world.
Meanwhile,the Palestinian Prisoners' Media Committee called off its Pizza Hut boycott campaign after accepting the apology.
The ad attempted to make light of Marwan Barghouti, the imprisoned leader of the 24-day-old hunger strike demanding better condition for Palestinian prisoners in Israeli jails.
On Sunday, Israel's Prison Service released a video claiming to show Barghouti secretly snacking, however Palestinians claim the footage was fabricated.
Pizza Hut then published a Facebook post with a pizza box superimposed on Barghouti's prison cell, asking if he would rather have broken his hunger strike with a pizza.
Around 1,500 Palestinians in Israeli jails have been refusing food since April 17.
The strikers have issued a list of demands including better medical services, family visits and more dignified detention conditions.
Israel has refused to negotiate with the prisoners, who seek better conditions, including the key demand of more family visits.
On Wednesday, Barghouti's wife sent an open letter to Pope Francis, urging him to speak out in support of the prisoners.
"We are an entire nation held captive and the Palestinian prisoners are the most dramatic reflection of this long and horrific captivity," Fadwa wrote. "How can the world remain silent in the face of such an injustice?"