The source of this current NEWS item is
 http://www.haaretz.com/hasen/spages/347477.html.
I will quote a little, as haaretz articles disappear into a closed archive after a few days:

"Elite confectionery group is to make own-brand bittersweet and white chocolate bars for Britain's
second largest supermarket chain, Sainsbury.
Elite won the tender, worth the equivalent of NIS 10 million, beating competition from Kraft
Foods and Ludwig's, to supply the chocolate from December 2003. The company will
manufacture the bars in its Nazareth plant.
Elite CEO Giyora Bar Dea said he hoped that the contract would
portend a closer working relationship with Sainsbury, which could extend into other
fields. He added that Elite had reached the final stages of Sainsbury's choice of milk
chocolate own-brand supplier. "

I then tried to find out about the factory, and discovered that it is located in a jewish "settlement" inside the west bank, called "Nazareth Elite".
Here is a link to a VERY DISTRESSING article about this settlement, and its relationship with the Palestinians of the Nazareth area.

 http://groups.yahoo.com/group/Encounter-EMEM/message/801

An extract:
"Nazareth Elite was built originally to confiscate Arab lands and limit the
expansion of Nazareth. Many of the residents of Nazareth fled the crowded
neighborhoods, and moved to some of the nearby Arab villages. Soon this
"Octopus" (Nazareth Elite) widened its arms to reach out in very unnatural
development patterns, on far away mountain tops to create a de facto
presence with an artificial neighborhood that absorbs Russian immigrants."

My conclusion is that any purchase of these products will give direct financial backing to one of the very worst aspects of what Israel is doing to the Palestinians. Note that the settlers are not even people who come from long residence in Israel, but who are recently (and still) coming from Russia in response to invitations and financial incentives which are offered purely on a racial basis.

Personally, my conscience will now no longer permit me to buy anything from Sainsburys. I don't have the strength to organise a boycott, but if anyone cares to take it on, I think this particular incident, with its connection to such a special place, might have the media appeal to make a good centrepiece for action.