A survey by an Israeli think tank published on Sunday said while most of the country's Jews deny claims of discrimination against its Arab citizens, one third view them as outside Israeli society.
"The data show that at present the Arab population feels discriminated against to a great extent, while a majority of the Jewish population rejects the allegation," the Israel Democracy Institute (IDI) said in its annual survey.
It said that asked if they considered "Arab citizens of Israel" as "part of Israeli society," 67.9 percent of Jewish respondents and 86.1 percent of Arabs answered in the affirmative.
It said that 77.6 percent of Arabs interviewed felt "discriminated against compared with Jewish citizens," but 52.5 percent of Jews disagreed.
Israeli Arabs, who make up nearly 20 percent of the population, are Palestinians who remained in the Jewish state following the 1948 war that attended its creation, along with their descendants.
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While they are guaranteed full equality under Israeli law they say that in practice they are short-changed in job opportunities, education and public funding, among other areas.
The far-right Yisrael Beitenu party of Foreign Minister Avigdor Lieberman won 15 seats in Israel's 120-member parliament in the 2009 general election, becoming the legislature's third-largest party, on a platform which included revoking Israeli Arabs' nationality unless they swear allegiance to the state.
In March this year parliament passed a bill penalising Arab commemoration of Israel's founding as a "catastrophe," in a move condemned by local rights groups.
The legislation imposes fines on any publicly funded bodies, such as local authorities or educational institutions, that mark the date as one of mourning or support other activities defined loosely as "contrary to the principles of the state."
The IDI said that its Israel Democracy Index was compiled from interviews conducted in March with a representative sample of 1,200 Israeli adults; 85 percent of them Jews and 15 percent Arabs.
It had a margin of error of 2.8 percentage points.