Paradise Now, which depicts two out-of-luck men from the occupied West Bank recruited to blow themselves up in Tel Aviv, was named best foreign language film at this week's Golden Globes ceremony, making it a contender for an Academy Award.
One of the film's producers, Amir Harel, is Israeli, and part of its marketing was paid for by an Israeli government arts fund. But so far, screenings of Paradise Now in Israel have been limited to independent art-house cinemas.
Harel blamed fierce criticism of the film - months before it was even completed - by Israelis who have been bereaved by attacks during a five-year-old Palestinian uprising against the occupation.
Harel said: "It seems the distributors have made a simple calculation, and decided they do not need the hassle of political demonstrations outside their cinemas."
While Paradise Now is almost entirely in Arabic, this in itself should not have posed a problem at Israeli cinemas used to foreign fare.
Shirit Gal, a Tel Aviv publicist who works with Israel's eight major distributors, noted that the recent films The Syrian Bride and Atash did well at the local box office
despite their Arabic dialogue.
Gal said: "The subject matter of Paradise Now is what has led the distribution chains to make a cost-benefit analysis, and conclude that it will not bring profits."
Palestinians have largely responded well to the film, although in their case the problem of distribution is logistical. They enjoy only one fully functioning cinema, in the West Bank city of Ram Allah.
Despite having a generally liberal attitude to the arts, Israelis have often reacted adversely to works attempting to deal with their decades-old conflict with the Palestinians.
A Swedish art exhibit that used a pool of blood-like dye to commemorate a Palestinian bombing two years ago was knocked down by the Israeli ambassador in full view of a television camera.
The Israeli ambassador to
Sweden damages this artwork
More recently, Steven Spielberg's Munich, a dramatisation of the Israeli hunt for masterminds of the deadly Palestinian attack on the 1972 Munich Olympics, has been accused of skewing history and criticising Israel's current security policies.
Paradise Now shows Palestinians bemoaning the travails of life under Israeli occupation, yet its characters also debate whether this warrants resorting to violence.
One of the bombers is motivated not only by revenge, but also by a need to atone for a relative who once spied for Israel - a comment on the pressures within contemporary Palestinian society.
To many Israelis, just exploring the issue sympathetically is insulting to the victims of bombings.
The conservative Jerusalem Post said in an editorial: "Those who would heap awards on such a film should, even if they are unconcerned by the sensibilities of Israelis, consider whether they would make the same choice if they - their nation or their families - were the victims."
Adding to the controversy about Paradise Now is the fact that the Golden Globes cited Palestine as its provenance, though the state does not yet exist and the director, Hany Abu-Assad, is originally from the Israeli Arab town of Nazareth.
Gal said: "Israelis tend to get very patriotic when it comes to politicised entertainment events like this."