The apology noted that the cartoon, which many described as anti-Semitic, was a mistake and had "crossed a line."
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The cartoon, drawn by Gerald Scarfe, includes a caption stating: "Israeli elections - will cementing peace continue?"
It caused particular offence because it appeared on International Holocaust Remembrance Day.
Gerald Scarfe's cartoon
"It is one thing for a newspaper to attack and caricature a leader — and it is as legitimate to attack Israeli leaders in cartoons as anyone else. But it is another thing to reflect in a caricature, even unintentionally, historical iconography that is persecutory or anti-Semitic," the Sunday Times said.
"The image we published of Binyamin Netanyahu which appeared to show him reveling in the blood of Palestinians, crossed a line. The image would have been a mistake on any day but the fact that last Sunday was Holocaust Memorial Day compounded the error."
"We realize that we caused grave offence, however unintended, which detracted from a day that marks one of the greatest evils in human history.
It was further stated that "The Sunday Times abhors anti-Semitism and racism of any type and we would never set out to offend the Jewish people — or indeed any other ethnic or religious group. The publication of last week’s cartoon was a very serious mistake."
The Sunday Times' owner Rupert Murdoch apologized for the cartoon the day after it was published. "Gerald Scarfe has never reflected the opinions of the Sunday Times," he wrote on his Twitter account.
"Nevertheless, we owe major apology for grotesque, offensive cartoon."
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