The relocation of the painting - which depicts a slingshot-toting rat - raises ethical questions about the removal of artwork from occupied territory.
The painting initially appeared near Israel's separation barrier in the occupied West Bank city of Bethlehem and was one of several works created around 2007.
They employed Banksy's trademark absurdist and dystopian imagery to protest against Israel's decades-long occupation of territories the Palestinians want for a future state.
The artwork now resides at the Urban Gallery in the heart of Tel Aviv's financial district, surrounded by glass and steel skyscrapers.
The Associated Press could not independently confirm the authenticity of the piece, but Koby Abergel, an Israeli art dealer who purchased the painting, said the cracks and scrapes in the concrete serve as "a fingerprint".
The 70 kilometre journey it made from the West Bank to Tel Aviv is shrouded in secrecy.
The 410 kilogram concrete slab would have had to pass through Israel's barrier and at least one military checkpoint - daily features of Palestinian life, and targets of Banksy's satire.
Mr Abergel, who is a partner with the Tel Aviv gallery, said he bought the concrete slab from a Palestinian associate in Bethlehem.
The graffiti artwork was spray-painted on a concrete block that was part of an abandoned Israeli army position, next to a soaring concrete section of the separation barrier.
Some time later, the painting was itself subjected to graffiti by someone who obscured the painting and scrawled "RIP Bansky Rat" on the block.
Palestinian residents cut out the painting and kept it in private residences until earlier this year, Mr Abergel said.
The massive block was enclosed in a steel frame so it could be lifted onto a flatbed truck and rolled through a checkpoint. It arrived in Tel Aviv in the middle of the night.
The piece now stands on an ornately patterned tile floor, surrounded by other contemporary art.
Baruch Kashkash, the gallery's owner, said the roughly two square metre block was so heavy it had to be brought inside by a crane.
Israel controls all access to the West Bank, and Palestinians require Israeli permits to travel in or out and to import and export goods.
Israeli citizens, including Jewish settlers, can travel freely in and out of the 60 per cent of the West Bank that is under full Israeli control.
Israel prohibits its citizens from entering areas administered by the Palestinian Authority for security reasons, but there is little enforcement of that ban.
The Palestinians have spent decades seeking an independent state in the West Bank, Gaza and east Jerusalem, territories captured by Israel in the 1967 Middle East war.
The peace process ground to a halt more than 10 years ago.
Mr Abergel said the artwork's move was not co-ordinated with the Israeli military, and that his Palestinian associates were responsible for moving it into Israel and crossing through military checkpoints. He said he has no plans to sell the piece.
According to the international treaty governing cultural property to which Israel is a signatory, occupying powers must prevent the removal of cultural property from occupied territories.
"This is theft of the property of the Palestinian people," said Jeries Qumsieh, a spokesman for the Palestinian Tourism Ministry.
"These were paintings by an international artist for Bethlehem, for Palestine, and for visitors to Bethlehem and Palestine. So transferring them, manipulating them and stealing them is definitely an illegal act."
The Israeli military and COGAT, the Israeli defence ministry body responsible for co-ordinating civilian affairs with the Palestinians, said they had no knowledge of the artwork or its relocation.
Banksy has created numerous artworks in the West Bank and Gaza Strip in recent years, including one depicting a girl conducting a body search on an Israeli soldier, another showing a dove wearing a flak jacket, and a masked protester hurling a bouquet of flowers.
Banksy did not respond to requests for comment.
