Huda Abo Zaeid is an Arab woman who wears the hijab of a devout Muslim. She also oversees Hebrew curriculum at the local elementary school.

It’s indicative of the dual identities for people in this Arab village in central Israel.

At the local community center, the entryway displays portraits of Palestinian intellectuals alongside prints by a famous Israeli artist. Downstairs, a government-funded museum commemorates the 1956 massacre of Kafr Qassem villagers by Israeli soldiers, an event still seared into the collective memory of Arab citizens of Israel. A sign in Hebrew reads: "We won't forget, we won't forgive."

A short drive away, wealthier Arab residents inhabit a strip of aristocratic stone mansions nicknamed “Saviyon,” after a wealthy Jewish suburb of nearby Tel Aviv.

Ms. Abo Zaeid and her village symbolize the complicated twin identity of Israel’s growing Arab minority, who now make up a fifth of the country’s population. Members of the nearly 1.5 million population find themselves wrestling with a seemingly contradictory evolution of integrating into Israel’s middle class while deepening their identification with the Palestinian people.

Nowhere are they fully at home: In Israel, many Jews view them as a fifth column, and in the Arab world they are seen as collaborators with Israel.

Today, their identity crisis is especially acute. They have made rapid strides in education, professional advancement, and political representation. Many are fluent in Hebrew and value the country’s Western orientation. An Arab party is the third largest in the Knesset, Israel’s parliament. The regional tumult caused by the Arab Spring has even strengthened Arab citizens’ identification with Israel.

But they are also facing increasing hostility. The stalemate in negotiations on a Palestinian state, coupled with recurring cycles of war and uprising in Gaza and the West Bank – and most recently Jerusalem – has made them uncomfortable speaking Arabic or wearing traditional dress in Jewish areas.

Moreover, a sustained push by successive right-wing Israeli governments to enshrine the state’s Jewish character as preeminent both in law and policy has raised questions about how their second-class status fits in with the country’s democratic traditions.

Even the name of the community is fraught. Jews long have called them Israeli Arabs; Palestinians in the West Bank and Gaza call them “1948 Arabs” or dakhil, Arabic for “internal," Arabs. In recent years many within the community have started to refer to themselves as Palestinian Arab citizens of Israel.

Ultimately, regardless of name, they represent a community that poses a test of tolerance for both the Israeli and Palestinian sides. But they also raise a fundamental question for themselves: Who exactly are we?

“We don’t have an identity. We are the real refugees. We have a conflict between the national side and civilian side,” Abo Zaeid says. “We pay the price both with the Arabs and with the Jews. And it’s very difficult.”

The Israeli half

Israel’s Palestinian minority is nearly three-fourths Muslims. Christians and Druze account for the remainder. More than 90 percent live in all-Arab villages or cities, and just over half live in northern Israel’s Galilee region – far away from the country’s economic heart in Tel Aviv’s metropolis.

For decades, that distance has made it easier for the Israeli government to marginalize the Arab community, neglecting investment in schools, roads, public transportation, and industrial zones. Half the Arab public remains impoverished and yawning social gaps persist with Jews.

Arab citizens complain that the government has built hundreds of new towns for Jews and zero for Arabs in northern Israel. In the past decade, no master development plans have been approved for Arab areas, forcing many to build illegally.

“How can I feel equal when I can’t build a house on my land?” says Raed Massoud, a barber who points to the jumble of houses opposite his shop in the village of Arara, which straddles the main road linking Israel’s coastal plain with the Jezreel Valley in the north.

Thousands with financial means have bought houses in Jewish neighborhoods: Nazareth Illit – originally established for Jews on a hill above the Galilean town of biblical fame – is now 30 percent Palestinian because of building limitations in Nazareth below. It’s creating an encounter that became fodder for a groundbreaking Israeli television sitcom – “Arab Labor” – that skewered casual discrimination and social dilemmas faced by the Palestinian minority.

Only in recent years have Israeli government economists realized that a lack of development and workforce integration among the Arabs will eventually become a drag on economic growth and public finances. That, along with growing international pressure, prompted the government in early January to approve nearly $4 billion in assistance to Arab municipalities. But Arab leaders and experts remain skeptical it will ever get doled out, and Israeli Prime Minister Benjamin Netanyahu retroactively threatened to set conditions for disbursement.

Meanwhile, the Arab middle class in Israel is modernizing: Birthrates are dropping and education levels are rising. In the past decade, Arab students have flooded into Israeli colleges and universities, accounting for 16 percent of the undergraduate student population compared with 10 percent a decade ago.

At the prestigious Technion, Israel’s version of the Massachusetts Institute of Technology, 20 percent of the students are Arab. Israeli Arab women now have a 27 percent workforce participation rate compared with 17 percent a decade ago, and two-thirds of postsecondary Arab students are women.

Among doctors and computer programmers there is an increasing desire to leave their villages to find work in Israeli cities, and tens of thousands have even settled down there. Civil society leaders among Palestinians in Israel are more assertive in demanding civic, economic, and political equality, and more confident in condemning discrimination.

“These are social revolutions in terms of modernization and Israelization. We are becoming more and more similar to Israeli society in educational and employment habits, and also in our political participation,” says Mohammad Darawshe, a director at Givat Haviva, a nonprofit educational institute that promotes equality between Arabs and Jews.

A strong head wind

But Israeli Arabs are running into a strong head wind amid ongoing conflict and political turmoil. In recent weeks tensions with the government have been on the rise. The Jan. 1 killing of two Israelis in a Tel Aviv bar by an Arab citizen prompted Mr. Netanyahu to accuse the minority of being a “state within a state” – seen by many as an echo of his much-criticized election day get-out-the-vote warning to followers that Arabs were streaming to the ballot box.

Amid the wave of violence in late November the government outlawed a branch of the Islamic Movement, accusing it of links to the militant Hamas movement and of incitement regarding Muslim holy places in Jerusalem. That has spurred concerns that other, more mainstream, political organizations could be next.

“This is a turning point in the relations between Arabs and Jews. The fear is that it could be a slippery slope” to further political marginalization, says Nohad Ali, a sociologist at the University of Haifa. “The test of democracy in Israel is the test of the [status of the] minority and not the majority.”

In polls of Jewish Israelis, three-fourths of respondents support full civil rights for Arab citizens, but two-thirds also say they would like to see a law that elevates the country’s status as a Jewish state over its democracy.

Nearly one-third support outlawing the Arab “Joint List” party, the new alliance that in the last elections won Israeli Arabs 13 seats in the 120-seat Knesset.

The Palestinian half

Israel’s Arab minority has increasingly embraced the cause of their Palestinian countrymen in the territories captured in 1967. Arab members of the Knesset speak out in support of Palestinians in the West Bank and Gaza in their fight against Israel. Citizens routinely hold solidarity rallies in times of war and unfurl the Palestinian national flag both at political protests and at commemorations of the so-called Nakba, or catastrophe, referring to the 1948 war in which Israel won independence.

Nevertheless, they draw a line at joining a Palestinian state: Many say they prefer to remain as a minority in Israel and reject nationalist violence. Indeed, the current wave of knifings and shootings has remained mostly in the West Bank.

Kafr Qassem’s location on the Green Line with the West Bank would make it easy for the border to be redrawn and ceded to a Palestinian state, a proposal of some far-right Jewish politicians.

But Abo Zaeid rejects that idea, saying that on the other side of the border there’s less political freedom and more corruption.

Like Ayman Odeh, leader of the Joint List, she also rejects a violent uprising. “Our village is very religious, but it doesn’t collaborate with anyone,” she says. “It’s quiet.”

Says Givat Haviva’s Mr. Darawshe: “As a society we see ourselves as an extension of Palestinian society. The same music cassettes played in Jenin [in the West Bank] are played in Nazareth [in Israel]. After the Oslo peace agreements, we realized that we are the same people, but with separate destinies.... We realized that Palestinian statehood is for those in the territories; our destiny is to remain with the Israelis.”

In a 2015 survey by the University of Haifa, 60 percent of Palestinians in Israel said they are resigned to living in a country with a Jewish majority.

A thin majority of those polled said they would vote for a constitution defining Israel as Jewish and democratic as long as Arabs have full rights. Two-thirds said that Israel is a good place to live. More than 70 percent want Arab parties to join Israel’s governing coalition.

Experts like Professor Ali warn, however, that there is a sizable minority that remains alienated and uninterested in joining the Israeli mainstream.

But even for those who seemingly have overcome the barriers toward integration and success, there is cultural disconnect and stereotyping.

Hawazin Younis is a doctoral student in anthropology at the University of Haifa who researches the barriers and ceilings for Arab professional women. Though she’s from the village of Ara, across the road from Arara, her style and secularism seem to be that of a Tel Aviv local.

The mix of education and cosmopolitanism stirs assumptions among Jews that her opinions are somehow different from those of other Arabs, or that she’s more moderate than women who wear a hijab. She also bridles at those who attribute her success to Israel.

“Its not Israelification. Israel didn’t make me like this. Israel limits me. It’s just a progress in modernization that’s accepted in all the countries,” she says. “I don’t have to say, ‘Thank you, Israel, for giving this to me.’ It’s my right as someone who was born here.... I have to explain this over and over, and it’s tiring.”

A bridge?

Though Ms. Younis says Palestinians in Israel have the potential to be a bridge to neighboring countries, for that to happen the Israeli majority must come to terms with her identity as a Palestinian, she says.

A year ago, she hit a barrier when she passed on a dream opportunity to present her research at the United Nations because officials at the Israeli Foreign Ministry asked her to remove “Palestinian” as an adjective describing her subjects.

“You can’t nationalize my identity and my connection to a people,” she says. “If I represent the ‘beautiful Israel’ that brings an Arab student to express herself as part of the Israeli delegation, I felt like I would have had to make a concession. So I passed it up. It was difficult.”

But when asked if she would want to be part of a Palestinian state, she also balks.

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“I don’t think it’s a contradiction to be a minority with equal rights,” she says. “What about the rights that I’ve invested in here?

“The economic situation is a mess, because of the occupation. So, OK, I can sing the Palestinian national anthem, and I can feel connected, but I can’t survive there.”