The book, which was defined by the panel of judges as "a melancholic novel about the secrets of a work of art," was first published in Hebrew in 2011 and later translated into many languages around the world, including French.
Prix Médicis is given each year in November since 1958 to a work of fiction in French. The Prix Médicis étranger was added in 1970 to recognize a book published in translation, and the Prix Médicis essai has been awarded since 1980 for non-fiction works.
'The Retrospective' tells the story of Yair Moses, a film director, who arrives in Santiago de Compostela in Spain with Ruth, his veteran actress, for a retrospective in honor of his movies.
On the wall on top of their bed in the hotel room, he discovers a reproduction of an unfamiliar painting, in which a young woman is seen breastfeeding an older prisoner.
Moses is unaware of the long-standing European tradition of Roman Charity, but believes that the painting implements a daring scene suggested by his scriptwriter, Trigano, which was meant to take place in their seventh film together, more than 30 years ago.
Following the discovery of the painting, Moses and Ruth's return to Israel involves a physical and mental journey into the past, which leads to reparation, atonement and reconciliation.
Abraham B. Yehoshua was born in Jerusalem in 1936. He has written more than 30 books and is famous for his political activity as well. In 2007, he won the Los Angeles Times book prize for "A Woman in Jerusalem," which in 2010 was adapted into a film called "The Human Resources Manager."
He is well-known and popular in France, where he lived for three years in the 1960s.
"This prize is special because I am very attached to France," he told AFP. "In addition it is given in the Parisian quarter I lived in my youth. It was my first time outside Israel in the 1960s and my first experience of Europe."
He said there was a spurt of creativity in Israel in music, the theatre and in cinema that was comparable to "Europe between the two wars.
"When there are political problems ... threats like Iran today, it makes for a very creative atmosphere."
Another famous Israeli author, David Grossman, was awarded the Prix Médicis étranger in 2011 for his novel "To the End of the Land."
AFP contributed to this report