The demonstration, made up mostly of Jewish New Yorkers, took over the main hall of the iconic station and blocked its main concourse.
Organizers called the peaceful sit-in “the largest civil disobedience New York City has seen in 20 years.”
The New York Police Department said at least 200 people had been arrested, while organizers put the number at more than 300.
Photos from the scene showed long lines of young people standing in handcuffs and wearing black sweatshirts with the words “Not In Our Name” and “Cease Fire Now” printed in white.
The sit-in was called by the group Jewish Voice for Peace-New York City, which said thousands of its members had attended the protest, blocking the main concourse of the city’s central rail station.
Pictures showed the terminal packed with protesters who held up banners reading “Palestinians should be free” and “Mourn the dead, fight like hell for the living.”
Protesters launched the event by lighting candles and reciting the prayer for the dead.
The Palestinian health ministry said on Friday that Israeli strikes on Gaza had now killed 7,326 people, more than 3,000 of them children.