"I believe we need this generation of Israelis to tear down the walls and make peace with their neighbours," the aging British rocker told the crowd of about 50,000 fans in the mixed Arab-Jewish town of Neveh Shalom.
The veteran musician enjoys a strong following in the region where Pink Floyd's 1979 hit Another Brick in the Wall has become an anthem of resistance to the separation barrier Israel is building across the West Bank.
His comments drew criticism, with the online edition of liberal newspaper Haaretz bombarded by nearly 300 comments, most of them angry and peppered with insults.
"So he'd have armies of suicide vermin... march into Israel blowing themselves and little children up every day? I presume that's what he wants," wrote one critic from New York State in the Talkback section.
"He never got on an Israeli bus, never had his car shot at, never stared down a Qassam (Palestinian rocket). Bye Roger, go do a concert in Saudi Arabia, then tell us about repression," said another respondent called Ron.
At the barrier
Before the concert, the 63-year-old Waters visited the barrier, which Israel says is vital to prevent attacks and which the Palestinians denounce as a land grab.
Waters paints graffiti at Israel's
barrier surrounding Bethlehem
He scrawled the Pink Floyd lyrics Tear down the wall on the barrier and signed his initials, alongside graffiti left by hundreds of other protesters.
Waters had switched the concert venue from Tel Aviv to Neveh Shalom, close to Jerusalem, in an expression of support for co-existence after Palestinians criticised his decision to perform in Israel.