Demonstrators carried Palestinian flags and called for the right of refugees to the homes that their families fled or were expelled from in 1948.
Thousands of Arab Israelis rallied on Thursday near the northern city of Haifa in a protest on the 70th anniversary of Israeli statehood, seen by Palestinians as a catastrophe, or Nakba in Arabic.
Under the slogan “Your Independence Day is the day of our Nakba,” they gathered in the town of Atlit, about 12 kilometres (seven miles) south of Haifa.
Palestinians say the 174 residents of an Arab village at the site were forced out by Israel in the war that accompanied its foundation in 1948, leaving only an Islamic cemetery.
An Israeli town of the same name now stands there.
Demonstrators carried Palestinian flags and called for the right of refugees to return to the homes that their families fled or were expelled from in 1948.
TRT World's Iolo ap Dafydd reports from northern Israel.
Demonstrators said they would not give up the refugees’ “right of return”.
The United Nations supported that right in a 1948 resolution, but it has never been implemented.
“I am an Arab, and I want to preserve my culture and identity regardless of the name of the country,” said 21-year-old Wassal Kanana.
Israel says an influx of millions of Palestinian refugees and their descendants to their historic homeland would destroy the concept of a Jewish state, which was established on May 14.
On Thursday, Israel celebrated the anniversary of Israel’s founding according to the Hebrew calendar.
Israeli warplanes staged aerial displays over Haifa and other major cities.
Arab Israelis are descendants of Palestinians who remained on their land following the creation of Israel.
Today they account for some 17.5 percent of Israel’s population and complain of discrimination, especially in the areas of jobs and housing.
Israelis on Thursday celebrated the nation's 70th anniversary, with military honour guards and a reception at the presidential residence.
President, Reuven Rivlin, and his Chief of Staff, Gadi Eizenkot, inspected an honour guard, with the Israeli army marching band playing in the background.
Prime Minster Benjamin Netanyahu and Defence Minister Avigdor Lieberman walked side by side with Rivlin as they marked the start of Thursday's Independence Day celebrations.
During the ceremony Netanyahu spoke of the need for Israelis to make sacrifices to ensure a secure future.
Helicopters flew over Jerusalem and other Israeli cities, and throughout the day, there were to be a number of military displays as many Israelis celebrated outdoors with their families.