Israel's culture, perseverance in the face of adversity and "the hand of providence" have figured prominently in why Israelis are more economically successful than Palestinians, Romney said in remarks his campaign later claimed were "grossly mischaracterized."
"As you come here and you see the GDP (gross domestic product) per capita, for instance, in Israel, which is about US$21,000, and compare that with the GDP per capita just across the areas managed by the Palestinian Authority, which is more like $10,000 per capita, you notice such a dramatically stark difference in economic vitality," he said.
Pointing to the book "The Wealth and Poverty of Nations," Romney went on to cite the author David Landes's thesis.
"He says if you can learn anything from the economic history of the world, it's this: culture makes all the difference. Culture makes all the difference. And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things," Romney said, including "the hand of providence."
He added similar economic disparities exist in other parts of the world, including the United States and Mexico.
World Bank data shows Romney's numbers were way off, with Palestinians far worse off than Israelis: Israel's 2011 per capita GDP was about $31,000 in 2011, while the West Bank's and Gaza's was just above $1,500.
Palestinian leaders reacted to Romney's remarks with dismay, marking the second time in less than a week that the presumptive Republican nominee has angered a nation on a trip meant to highlight his foreign policy gravitas.
"It is a racist statement, and this man doesn't realize that the Palestinian economy cannot reach its potential because there is an Israeli occupation," Saeb Erekat, a senior aide to Palestinian President Mahmoud Abbas, told The Associated Press.
"It seems to me this man lacks information, knowledge, vision and understanding of this region and its people. He also lacks knowledge about the Israelis themselves. I have not heard any Israeli official speak about cultural superiority."
Other Palestinian figures accused Romney of jeopardizing the stalled peace process with some of his pro-Israel stances, in particular calling Jerusalem the capital of the Jewish state.
The city's status has been a key sticking point during stalled peace talks between Israelis and Palestinians.
"Mr. Romney must understand that such an era has ended and Arab nations who are rebelling for the sake of freedom and dignity will not allow him to mess with their fates in order to win some votes," said PLO secretary-general Yasser Abed Rabbo.
Romney made no mention in his speech that Israel has had control over the West Bank, the Gaza Strip and east Jerusalem since 1967.
Both the World Bank and the International Monetary Fund have long argued that the Palestinian economy can only improve if Israel lifts many of its trade and movement restrictions in the occupied territories. But Israeli leaders view those restrictions as vital to their country's security.
The Romney campaign denied vehemently that he meant any offence to Palestinians in his remarks.
"This was not in any way an attempt to slight the Palestinians," Stuart Stevens, Romney's chief strategist, said Monday in Poland. "And everyone knows that."
Stevens declined to elaborate, however, on what Romney meant by "culture."
Romney's latest brouhaha didn't just startle Palestinians — left-leaning Jewish publications also weighed in with criticism.
Haaretz, a liberal Israeli newspaper, reported that Romney's speech "sounded as if it could have been written by (Prime Minister Benjamin) Netanyahu's bureau," adding most of the audience members at the fundraiser were right-wing, religious American immigrants.
Romney didn't just land himself in hot water on the hyper-sensitive Israeli-Palestinian issue. He also praised Israel's universal health-care system.
"Do you realize what health care spending is as a percentage of the GDP in Israel? Eight per cent," Romney marvelled in the same speech.
"You spend eight per cent of GDP on health care. You're a pretty healthy nation. We spend 18 per cent of our GDP on health care, 10 percentage points more.... We have to find ways — not just to provide health care to more people, but to find ways to fund and manage our health care costs."
Romney has threatened to repeal President Barack Obama's sweeping health-care reform laws, recently upheld by the U.S. Supreme Court, that require all Americans to have health insurance.
Israel, meantime, created a national health-care system in 1995 that does much the same thing as so-called Obamacare: it requires all residents to carry insurance and is funded largely via payroll and general tax revenue.
Last week, Romney angered British Prime Minister David Cameron, London Mayor Boris Johnson and Britons in general when he suggested London wasn't prepared for the Summer Olympic Games.