Images and video of anti-Semitic chants being shouted and flares being set off on the steps of the Opera House while it was lit up on Monday night in the colours of the Israeli flag were beamed around the world.
Rally organisers from the Palestine Action Group Sydney denounced the chants made by a small group of attendees and said racism was not welcome at the event.
They confirmed a second rally was planned to go ahead at Town Hall on Sunday afternoon.
Australian Palestine Advocacy Network president Nasser Mashni said what happened on Monday night was unacceptable but he defended the group's right to protest.
"The reality of people coming together to express concerns about situations is that, at times, unwanted people come along and provoke unnecessary and unwanted actions," he told Nine's Today program.
"Violence is never going to be an answer, as anti-Semitism is never the answer."
Mr Mashni said the rally's message of solidarity with Palestinians caught up in the Gaza conflict had been lost.
"Palestinians, we're Australians, the most important thing is for us to come together," he said.
"As human beings, we are sharing the pain and suffering, not only of the deaths of Israelis, we should also be feeling the pain of Palestinians."
Pro-Palestine rally organisers are planning to hold gatherings across Australia with protests in Canberra, Perth and Brisbane on Friday and Melbourne, Sydney and Adelaide on Sunday.
On Wednesday, NSW Premier Chris Minns warned the Sydney protest was "not going to happen".
But South Australian Premier Peter Malinauskas will not take the same approach.
"In South Australia there is an absolute right for people to be able to express their political views freely in the form of protest," he told ABC Radio on Thursday.
SA Police had been in touch with organisers and were satisfied with the situation, Mr Malinauskas said.
"But we've got a very firm view as a government that we will not be tolerating any acts at the protests that are contrary to the law," he added.
An attack by Islamist group Hamas that struck Israeli towns killed more than 1200 people on Saturday.
Scores of others were taken hostage after militants breached the fence enclosing Gaza.
Israeli reprisal strikes on blockaded Gaza have reportedly killed 1100 people.
Australian Jewish communities are on high alert following the protests and reports of anti-Semitic threats.
Security around Jewish schools, synagogues and hospitals has been tightened due to fears of potential violence.
Melbourne rabbi Daniel Rabin said he was getting phone calls from many scared people.
"There's definitely an anxiety in the air, people are concerned seeing the rally in NSW (which) was just so distressing," he said.
"We have to call it out ... we have to ensure we don't allow any of this sort of hate speech to be prolific in (Australia)."
NSW Police have flagged a strong presence in Sydney's city centre this weekend and have established a task force to co-ordinate responses to protest activity.
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