New efforts by Israeli municipal officials to collect property taxes from Christian churches in their jurisdictions is causing a major diplomatic crisis with the United States—so much so that the Israeli prime minister personally intervened to stop the measures. Jerusalem Story has obtained an August 6, 2025, letter that Israel’s Prime Minister Benjamin Netanyahu sent to Israeli mayors, asking them to stop “debt collection proceedings” because it has become an issue of contention in Israeli-US diplomacy.

“The issue of charging churches municipal tax is a matter of high political sensitivity, especially for the current administration in the US,” states the letter, written in Hebrew and signed by Netanyahu.1

“In view of the above, and given the existence of weighty policy and strategic considerations—I ask you to examine a way, subject to all applicable law, to refrain from continuing the debt collection proceedings vis-à-vis the churches and from any step that would undermine relations with them.” The letter also announces the creation of a working group led by Foreign Minister Gideon Sa’ar with the ministries of foreign affairs, justice, and interior, municipal officials, and representatives of Christian groups in Israel.

The letter was sent on the same day that the Israeli-run Jerusalem Municipality went to the extreme of freezing all of the bank accounts, a total of about $3 million, belonging to the Greek Orthodox Patriarchate Church. The Patriarchate, which oversees churches, schools, hospices, and charitable institutions across the city, suddenly found itself unable to pay salaries, settle bills, or even cover the most basic of operational needs.

Assad Mazzawi, a lawyer who represents several church bodies, described the freeze as “a drastic escalation in a dispute that has been simmering for decades.” The municipality has since lifted the bank freeze following international pressure, but the underlying tension over church taxation remains unresolved.2 The city seized the education funds of two schools in 2025, calling it payment for overdue taxes, and also took the Armenian Patriarchate to court to force foreclosure on some of its properties, claiming unpaid taxes.3

The conflict over property tax, called arnona in Hebrew, is far from new. Churches in Jerusalem, particularly the Greek Orthodox Patriarchate, are some of the city’s most prominent landowners. (In Israel overall, the Greek Orthodox Patriarchate is second to the Israeli government in the amount of land it owns. Much of it was obtained in the 19th century under the Ottoman Empire. Some of that land the church leases to the Jewish National Fund.4) Churches have long operated under an understanding with municipal and state authorities: properties used for worship, education, and charitable work are exempt from municipal taxes, while commercial properties can be taxed. This delicate balance has endured throughout Ottoman, British, Jordanian, and Israeli administrations, reinforced by centuries of international agreements known collectively as the Status Quo.

In 2018, tensions flared under then Jerusalem mayor Nir Barkat, who claimed that Christian churches owed over $174 million (NIS 570 million) in municipal taxes for properties traditionally considered exempt.5 In February 2018, the Catholic, Orthodox, and Armenian churches closed the Church of the Holy Sepulchre indefinitely in a rare show of unified protest, forcing the city to back down temporarily.6

The churches reopened after the Israeli government appointed a committee headed by senior Israeli official Zahi Hanegbi. However, according to Mazzawi, the churches have no information that this committee ever met or reached any conclusions. Seven years later, the issue has come to the forefront once again.

The main source of conflict between church officials and the municipalities concerns which buildings or organizations are exempt. Israeli municipalities seem to concede that church buildings where prayers and worship take place are exempt but argue that all other church-related buildings should pay city taxes.

Mazzawi also conceded that the tenants of a souvenir shop, for example, should pay municipal taxes, even if those shops (like most in the Old City of Jerusalem) are actually owned by a recognized church. However, what about schools, hospitals, and other humanitarian church-owned and run institutions? These nonprofit Christian institutions, which provide needed public services and relieve the government from costs that they would otherwise need to shoulder, should not be taxed, he said.

“Ever since this crisis blew up and then calmed down, we have had extensive discussions with municipal officials,” he said. “At their request, we handed over the entire [written] portfolio of all physical assets that the Orthodox Patriarchate Church owns in the entire country. The problem is that the municipality in Jerusalem and other locations continues to insist that the churches need to pay back a huge amount of debt without specifying the properties [this applies to].”

Mazzawi says that schools and hospitals are exempt, but Israeli officials have not specified where their estimate derives from. “In discussions, officials have conceded that most of what they are asking for is in fact exempt, but they keep referring to their large estimate of back taxes, possibly as a bargaining tool to force the churches to make further concessions,” he said.

For a while, Mazzawi said, the Patriarchate was not even clear whom to negotiate with. “We were not sure whether to negotiate with the Ministry of Interior, which can validate our exemptions as a church, or with local municipalities, who seem to have the power to freeze accounts without referring back to the Ministry of Interior.”

Under Israeli law, municipalities can freeze accounts without court orders, giving them a potent tool to enforce tax collection. While other churches in Jerusalem have faced demands for payments, the Greek Orthodox Patriarchate’s account freeze was unprecedented in scale and impact. Its legal team argues that this move violates not only historical precedent but also long-standing agreements between Israel and foreign powers, including France and the Vatican, which have oversight over some church properties and religious institutions.

Mazzawi explained that much of the confusion stems from “historical misclassification of church properties and ineffective oversight committees” that failed to clarify which institutions are subject to property taxes. Independent organizations renting church properties, for example, must seek exemptions individually. Over the years, some church-related institutions have accumulated substantial debts—sometimes reaching millions of shekels—due to misclassification or administrative neglect.

The dispute resonates far beyond Jerusalem. The Status Quo, formalized in Ottoman firmans of 1852 and 1853 and reinforced through European diplomatic interventions in Paris (1856) and Berlin (1878), protects the rights of Christian communities in the Holy Land. France, despite its secular constitution, maintains extraterritorial authority over several key sites, while the Vatican enjoys similar protections. Previous agreements, including the 1993 Fundamental Agreement between Israel and the Holy See, mandate good-faith negotiation over church assets, including taxation.

Yet, despite these protections, the Jerusalem Municipality pressed ahead, freezing accounts and attempting to enforce payments. Foreign diplomats and church leaders have expressed concern that the city’s actions undermine decades of careful negotiation and compromise, placing Jerusalem’s Christian heritage—and Israel’s international credibility—at risk.

The Trump administration has expressed frustration over other measures it sees as restricting Christians in Israel. In July 2025, US Ambassador Mike Huckabee sent a threatening letter to Israel’s interior minister, decrying its refusal to issue clergy visas to some of the most Zionist Christian allies active in Israel, such as the International Christian Embassies in Jerusalem, as well as other Christian groups with US ties.7 The matter was quickly resolved.8

The freeze had immediate, tangible effects. The Patriarchate was unable to pay clergy salaries, service costs for maintenance of holy sites, or continue charitable programs. Moreover, the Greek Orthodox Patriarchate is one of the oldest Christian institutions in the city, and it operates a significant number of schools (around 10 to 15) in Jerusalem and the surrounding areas. These schools serve not only the Orthodox Christian community but also provide a connection to the broader Christian heritage in Jerusalem, providing religious and secular education. Even basic purchases, like coffee for clergy or supplies for the Patriarchate’s schools, became impossible. The move, according to Mazzawi, was “an existential threat to the operational capacity of the Greek Orthodox Church in Jerusalem.”

Father Issa Musleh, spokesperson of the Greek Orthodox Patriarchate, told Jerusalem Story in August:

Other church bodies, including the Armenian Patriarchate and Franciscan custodians, have faced similar pressures, though none as severe as the Greek Orthodox freeze. In some cases, municipalities in Tel Aviv, Nazareth, and Ramla also attempted to extend arnona to historically exempt properties, reflecting a broader trend of municipal assertiveness over religious landholdings.

In June 2024, church leaders wrote to Prime Minister Benjamin Netanyahu, expressing readiness for discussions to find a holistic solution. A July 2024 meeting with Jerusalem Mayor Moshe Leon reaffirmed this willingness, and the mayor pledged not to act unilaterally. Yet in August 2025, the account freeze sent a chilling signal that municipal assurances alone were insufficient.

Mazzawi confirmed that negotiations will continue, with global attention pressing the municipality to permanently lift the freeze and clarify which properties are considered taxable. But the larger question—whether municipalities can unilaterally impose arnona on properties long considered exempt—remains unresolved.

For centuries, Jerusalem’s Christian institutions have balanced faith, charity, and diplomacy, ensuring that holy sites, schools, and welfare programs continue to serve the city’s residents. The August 2025 freeze is a stark reminder that these institutions operate in a fragile intersection of history, politics, and law.

Netanyahu’s letter indicates that diplomatic pressure from Christians in the US on an administration that is particularly attentive to their needs can make a difference in resolving this crisis.