Israeli Arab citizens (or Palestinian citizens of Israel), who comprise nearly 20 per cent of the population, continued to face broad governmental and societal discrimination in 2007. In most cases where the government acknowledged discrimination against this group, it did so by citing the Jewish identity of the state and its security in the face of continued attacks from the Occupied Territories of the Gaza Strip and West Bank.

A 2006 report by Israeli Arab intellectuals titled The Future Vision of the Palestinian Arabs in Israel sparked controversy extending into 2007. The report, prompted by Israel's internal debate over a new constitution, called for Israel to abandon its identity as a Jewish state, stop treating its Arab citizens as 'enemies', and guarantee equal status for Jews and Arabs. One leading Arab academic, Dr Adel Manna, said in April 2007, 'The Israeli public doesn't want to understand that it is demanding that the Arabs become loyal but on the other hand it is not allowing them to do so.'

In March the UN Committee on the Elimination of Racial Discrimination (CERD) called on Israeli lawmakers to scrap a race-based provision blocking family unification in Israel for broad swathes of the population in the Occupied Territories; the ban, adopted out of concern over terrorist attacks, has disproportionately affected Israeli Arabs who are more likely to have spouses from the West Bank and Gaza. Nevertheless, Israel's parliament, the Knesset, re-authorized the provision later in March, extending it until August 2008. Constitutional legal challenges to the law are pending.

Israel's 2006 war in Lebanon strained the relationship between the government and its Israeli Arab minority into 2007. An Arab member of the Knesset resigned his seat in April as it became known that he was under investigation for 'aiding the enemy' during the conflict, while he claimed that the government was persecuting him for his harsh criticism of its policies. In November 2007 the Knesset gave preliminary approval to a law that bans Israelis who visit 'enemy states' from taking seats in the Knesset. Supporters said it was aimed at ending meetings between Arab Knesset members and representatives of the Syrian government as well as such militant groups as Hezbollah and Hamas. Arab parliamentarians countered that the measure amounted to pure racism.

In September 2007 the Israeli Supreme Court ruled that the Jewish National Fund (JNF), established in 1901 to buy land for Jews in then-Ottoman administered Palestine, could no longer follow a policy of refusing to sell land to Arabs. The JNF administers around 13 per cent of all land in Israel, in part jointly with the Israeli Lands Administration. Anticipation of the ruling created pressure within the Knesset to make the continuation of such explicit discrimination legal. In June 2007 CERD criticized the government for impeding the land rights of Palestinians outside of Israel who wanted to return, calling on the state 'to assure equality in the right to return to one's country and in the possession of property'.

One subset of Israeli Arabs, the estimated 150,000–200,000 indigenous Bedouins of the Negev desert, continued their long-standing struggle for land rights. The government pursued into 2007 the repeated destruction of 45 unrecognized Bedouin villages, some of which predate the establishment of the Israeli state. The Israeli government denies Bedouin claims to the land for lack of documentation. Beyond bulldozing the shanties, the government has denied provision of electricity, water and sewage services to the unrecognized settlements that are home to around 80,000 Bedouins. In February the Israeli housing minister told the BBC, 'If they want their children to be educated, to grow up in the right environment, with all the culture and services, they cannot live in the desert.' Indeed, 120,000 Bedouins have moved into seven approved government towns. However these cramped settlements, with scant attached land, suffer shoddy design and were erected beginning in 1968 without Bedouin input. Forced urbanization has led to a loss of Bedouin traditional customs, high crime rates, drug problems and severe unemployment. Bedouin women have been especially affected, having lost their traditional social roles; added hurdles to mobility outside the home have contributed to near 90 per cent unemployment for women. In mid-July the government announced the establishment of a new agency to handle Bedouin issues.

Despite ongoing problems and setbacks, 2007 also saw some halting advances in Israel's acceptance of its Arab minority. In January the government of Prime Minister Ehud Olmert appointed Labour MP Raleb Majadele as a minister without portfolio – the first Israeli Arab ever to sit in a government cabinet. Over the objections of right-wing politicians, in July the government approved a history textbook that for the first time ever included Palestinian views on the 1948 creation of the state of Israel as a 'catastrophe'. However, the book was only for use in Israeli Arab schools.

A growing influx of Jewish settlers among Druze communities in northern Israel and the occupied Golan Heights further degraded the relationship between the state and Druze in the north in 2007. Druze and some in the established Jewish community complain bitterly of right-wing settlers bent on dominance of the local villages. In October, over 30 Druze and police officers were wounded in riots in the Golan Heights village of Peki'in.

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