The Palestinian-French-German production "Ave Maria" tells how Orthodox Jewish settlers crash into a statue of the Virgin Mary near a small remote convent with their car as the sabbath -- and the Jewish religious ban on using the phone to seek help -- begins.
They seek assistance from five nuns who belong to a silent order and who are therefore forbidden to contact anyone to fix the settlers' car.
The two groups find themselves in "their own worst nightmares as their rules and regulations for life are tested," says Khalil, who was born to a Palestinian father and a British mother in the northern Israeli Arab city of Nazareth.
In the film, which runs for less than 15 minutes, the Jewish settler family discuss among themselves whether they can accept a glass of water from the nuns' kitchen -- where forbidden pork is being prepared.
The events appear to the viewer as "both amusing and absurd", Khalil told AFP from his home in London, but they do not mock the settlers or the nuns.
The subject of the film, shot in Hebrew, Arabic and English, is not religion but something broader, Khalil said.
"When a child is born in Israel/Palestine it is assigned its friends and enemies and is told to fight for one side or the other."
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The film has so far won 16 awards and has been screened in over 30 countries, including at 75 festivals.
"An Oscar would be a wonderful acknowledgement of my work as a director, the icing on the cake," Khalil said.
Although Palestinian cinema is still trailing behind in the Arab world, it has made its mark at the Oscars.
In 2014, Hany Abu Assad's "Omar" scored a nomination in the best foreign-language film category.
Omar, a tale of love, betrayal and struggle in the Israeli-occupied territories also won a jury prize in the "Un Certain Regard" category at the Cannes festival and two top awards at the Dubai International Film Festival.
In 2013 "Five Broken Cameras" -- a Palestinian-Israeli co-production -- was an Academy Award nominee in the documentary section.
Directed by Palestinian Emad Burnat and Israeli Guy Davidi, the film documents the story of Bilin village and the struggle of its residents to protect their land from Jewish settlers and Israel's giant West Bank separation barrier.