As Dusty points out in the comments, this breaks a Federal law:
Product Packaging Protection Act of 2002 - Amends the Federal criminal code to prohibit intentionally tampering with a consumer product that is sold in interstate or foreign commerce by knowingly placing or inserting any writing in the product or in its container before its sale to any consumer without the consent of the product manufacturer, retailer, or distributor. Defines "writing" as any form of representation or communication, including graphic or pictorial representations.Luckily, on Indybay they documented themselves breaking this law at a Safeway supermarket (and pretending that they were "random Jewish customers" with names like "Moshe Cohen.")Subjects violators to a fine and imprisonment of up to one year, or up to three years for a second or subsequent violation.
The commenters helpfully point out that small Arab markets in Berkeley also sell Israeli goods.