Attackers vandalised the mosque in Yasuf in the northern West Bank overnight on Thursday and Friday, spraying hate messages in Hebrew and burning holy books in an attack blamed on hardliners angered by plans to curb settlement building.
Clashes later erupted as villagers hurled stones at Israeli troops sent to investigate the incident.
Security forces used teargas to disperse hundreds of furious villagers who tried to march on the nearby settlement of Tappuah after Palestinians blamed settlers there for the attack.
On Saturday Israeli President Shimon Peres also condemned the mosque attack, calling it "an incendiary criminal act against all the moral principles of the state of Israel."
"The government, security forces and all authorities must spare no effort to catch the guilty parties," he said in a statement.
On Friday Defence Minister Ehud Barak denounced the attack as "an extreme act meant to harm the government's attempts to advance the process for Israel's future."
Settlers have expressed outrage over the government's decision to impose a 10-month moratorium on new building permits for Israeli homes in the West Bank, outside annexed Arab east Jerusalem.
The settlement issue has been one of the thorniest in Israeli-Palestinian peace efforts, which have been stalled for the past year.
The Palestinians reject the moratorium as insufficient and insist they will not return to the negotiating table unless there is a complete settlement freeze in the West Bank, including east Jerusalem which they see as the capital of their promised state.
--------------------------------------------------------------------------------------------------------------------------------