This paper analyses Israeli policy towards Arab education in Israel and its consequences. Drawing upon literature on the colonial nation-state, and ethnic indigenous minorities, the study distinguishes three educational policy shifts since 1948: (1) Arab education under military administration until 1966 (2) the policy of integration 1967-1991 (3) the peace process since 1992, the quest for autonomy and Arab education's present 'on hold' status. Using the analytical framework suggested by Hodgson and Spours (2006), I first analyse political eras; then describe the state of the education system, the policy-making process and its consequences for the educational space and system outcomes. These concepts and methods are used to narrate historical developments of the Palestinian Arab education system in Israel, to critique state policy-making and identify future challenges. The findings demonstrate contingent relations between ethnicity and the state. The paper concludes by discussing existing educational policies and suggesting recommendations for the future.