"Our hands are tied," Metropolitan Transportation Authority spokesman Aaron Donovan said.
A Manhattan federal court judge ruled in July that the MTA violated the First Amendment rights of the group seeking to place the ad, The American Freedom Defense Initiative.
"The judge recognized our intention but found our attempt to be constitutionally deficient," Donovan said. "As a result, under our existing ad standards as modified by the injunction, the MTA is required to run the ad."
The ad states "In any war between the civilized man and the savage, support the civilized man."
It adds, "Support Israel. Defeat Jihad," in between two Stars of David.
Pamela Geller of the American Freedom Defensive Initiative doesn't think the poster will provoke opposition after the recent deadly assault on the US Consulate in Libya and following days of protests in the Middle East.
"How have world conditions changed?" she asked. "When is a good time?"
Muneer Awad of the Council of American-Islamic Relations said the ads use an offensive buzzword to "promote bigotry in New York."
"They're not only anti-Muslim, they're offensive to a large number of people, especially people who know the history of the word 'savages,'" he said.
"These ads are about nothing more than making money off of fear," Awad added.
Geller denies the ads were sweeping Muslims with a broad brush.
"There are no Muslims in my ad," she said. "There is no Islam in my ad."
Donovan said the MTA might consider revising its ad policy at its board meeting next week.
Commuters were divided on the poster.
"That's pretty bad," said Louis Gritsipis. "Ads like this have no place in the subway system."
Another woman said she had "no objection": "It's freedom of speech, right?"