Israel's 47 Christian schools have been on strike since the academic year started last week, with parents and school officials accusing the government of discrimination in funding their establishments.
Schools officials said the strike will end only when the authorities in the Jewish state meet their demands.
The strike affects 33,000 pupils -- 60 percent of them Christian and the others Muslim -- as well as 3,000 staff.
"If you care, then be fair," said one of the signs held up at the protest outside Prime Minister Benjamin Netanyahu's office which was attended by students in uniforms, parents and school officials.
"We pay our taxes and therefore we must have the same rights as everyone," said Manal Issa, a mother who came with her two children.
Abdel Massih Fahim, a Franciscan priest and director of the Catholic church's Custody of the Holy Land which oversees the Christian schools, said state funds only cover 29 percent of costs.
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But Wadie Abunassar, another school official, said Jewish schools recognised by the state but not considered official public schools receive funds that cover 100 percent of their needs.
"We demand equal treatment," said Abunassar.
Up until two years ago, Christian schools in Israel received 65 percent of their budgets from the state, with parents paying the balance, but that figure was cut then to 34 percent two years ago.
Now parents have to put up the difference, in what has become a financial burden for many who had been relying on private donations and state subsidies to provide their children with an education.
"We are demanding that the state give us 200 million shekels ($53 million) per year," to make up the difference and cover our costs, said Abunassar.
A dozen Arab Israeli members of parliament also joined Sunday's demonstration as armed police stood guard.
The rally came just days after Israeli President Reuven Rivlin was received Thursday by Pope Francis at the Vatican, and following recent attacks by extremist Jews on Christian churches.