Both sides in the public debate raging around the activity of the New Israel Fund (NIF) agree on one thing: this is a battle for Israel's soul.

The fund's detractors claim that the organisations funded by NIF are actively undermining Israel's security, supplying information to anti-Israel groups and calling for the indictment of senior Israeli officers and ministers on war crimes charges.

NIF executive director Rachel Liel does not mince her words either. "This is a battle over what Israel we want to live in," she says, "for the image of our society and the values that lead it. Is it an Israel that stays true to the values of its declaration of independence, or an extreme nation which delegitimises freedom of speech, a less democratic and non-inclusive society?"

Ms Liel began her new job a short while before the campaign against NIF, led by right-wing student organisation Im Tirzu, was launched in January. She has been spending most of her time over the last few months trying to refute the charges. So far, however, she has only seen the campaign intensify.

Knesset members from a number of parties are now trying to pass new laws that will make it much harder for human rights organisations to operate in Israel and receive foreign funding. Politicians, media figures, actors and singers have joined Im Tirzu to brand NIF and its affiliates as an anti-Zionist coalition that will stop at nothing to give succour to Israel's enemies.

So far, Im Tirzu has published two detailed reports on the fund's activities, backed up by poster campaigns. One featured a crude cartoon of NIF president Naomi Chazan with a horn on her head and another showed Israeli leaders on "wanted" posters and behind bars.

The first report claimed that 92 per cent of the Israeli sources that appeared in the report compiled for the United Nations Human Rights Council by Judge Richard Goldstone, supporting the claim that Israel committed war crimes in Gaza during Operation Cast Lead, were supplied by organisations funded by NIF. The second report lists NIF-affiliated organisations that have called for Israelis to be put on trial for alleged war crimes.

Ms Liel denies, however, that NIF funds were used to attack Israel's record in a biased manner. "These organisations prepare their own reports - this is what they were set up to do," she says. "The reports are then published and Goldstone made use of them, but the figure 92 per cent is grossly distorted. Maybe 2 per cent of his report came from these sources.

"People have to understand how human rights organisations work. After the Gaza operation they called upon the government to investigate allegations. This is what human rights groups do after any military operation or war, anywhere in the world. If the government had conducted an open investigation, there would have been no Goldstone Report.

"These investigations should strengthen Israel. Personally, I am very uncomfortable with Goldstone's report, especially the claim that Israel intentionally committed war crimes and attacked infrastructure."

She says that the fund is categorically opposed to personal persecution of IDF officers. "Our official position is that we don't give money for this kind of thing. There might be an organisation that received funding from us in the past for a specific project but we would never fund prosecution. If we found out that one of our organisations had been using our funding for this, we would have to consider discontinuing our support."

In its three decades of existence, NIF has provided over $200 million, largely from foreign donors, to over 800 groups dedicated to social change in Israel. These include the main human rights movements, organisations working for minorities' rights, religious pluralism, women's rights and the protection of the environment.

Now that the public storm has slightly abated, Ms Liel is prepared also to engage in a bit of soul-searching.

"What really disturbs me is that the human rights groups have not succeeded in convincing the public that human rights is not about right or left politics. These same groups will also fight for the rights of minority groups on the right. The Association for Civil Rights defended Yigal Amir's right to marry while in prison," she says, referring to the murderer of Yitzhak Rabin.

"We should examine ourselves and think a lot more about how we reach a wider public that we have failed so far. The organisations put a lot of effort into writing reports and Supreme Court petitions. Maybe we should be putting less energy in the legal field, treat the Supreme Court as a last resort and invest more in creating a wide grassroots movement."

She maintains that changing the group's anti-Israeli image is possible.

"NIF's vision is to promote the values of Israel's declaration of independence, that the state 'will ensure complete equality of social and political rights to all its inhabitants irrespective of religion, race or sex'. No document better describes what we believe.

"In addition, we have always been steadfastly against refusing to serve in the IDF, and we have never funded anyone calling for that. Israel has its defence needs and we are also resolutely against any calls for boycott or divestment. The OECD just announced that Israel is going to be its new member. Does anyone really think that it could join such an organisation if it did not have the kind of progressive legislation that we have been promoting for the last 30 years?"