JERUSALEM—The Mideast conflict has done little to help Israel's image in the world, but the way local filmmakers deal critically with the Israel-Palestinian issue has won wide international praise—and this year, recognition from the top of the movie industry.

Two Israeli-produced documentaries about the conflict have been shortlisted for possible nomination in this year's Academy Awards. Few Israeli films have contended in the Best Documentary category before. The shortlisted films represent rare recognition of foreign entrants in a category dominated by American productions.

The two films examine the conflict from contrasting viewpoints, one through the eyes of the occupier and the other through those of the occupied. Neither does the Israeli government any favors—though it helped foot the bill.

"The Gatekeepers" features candid interviews with retired Israeli spymasters, while "5 Broken Cameras" tells the personal story of an amateur Palestinian cameraman who documents clashes between his fellow villagers and Israeli soldiers and settlers.

Both films were listed by the New York Times as "Critics' Picks," and "The Gatekeepers" won praise from the paper's chief critic as one of the best documentaries of 2012. The final Oscar nominations will be announced Jan. 10.

Israel's overall image in the world has taken a beating because of the decades-long conflict with the Palestinians, but even critics say its film industry shows that Israel remains a vibrant democracy. In recent years, international film festivals have awarded Israeli directors accolades for their soul-searching portraits of the country.

Israeli films were finalists for the Academy Award for Best Foreign Language Film four times between 2008 and 2012, giving Israel more nominations during that period than any other country. Three of the films dealt with the Israeli-Arab issue.

Films going beyond the conflict have also scooped up awards. A feature film this year about the country's cloistered ultra-Orthodox Jewish community won the best actress award at the 2012 Venice International Film Festival, though it did not make the cut for the Oscars.

This "golden age" of Israeli cinema is almost counter-intuitive. While shining a critical light on Israeli policies and society, the films have been significantly bankrolled by the government.

"Our ability at self-criticism is very rare," said Yehuda Stav, chief film critic at the Israeli daily Yediot Ahronot. "There is complete freedom (in Israel) to make documentary films that talk about our problems, that criticize what we do."

In Israel's informal society, filmmakers and journalists have easy access to senior officials. That helped director Dror Moreh secure exclusive interviews with some of Israel's most shadowy figures: six retired directors of Israel's domestic spy agency, the Shin Bet.

The position is so secretive that until recently, the director of the Shin Bet was long known to the public only by his first initial, and his identity was disclosed only upon retirement.

In Moreh's film, they sit before the camera dressed informally in polo shirts or suspenders, speaking frankly about their memories of tracking Palestinian militants and radical Israeli settlers.

Their accounts are woven together with animated graphics that bring to life archival photos and news clippings, to reveal the behind-the-scenes calculations during targeted killings and interrogations.

In more private moments, the spymasters speak about the morality of their actions.

"For them (the enemy), by the way, I was also a terrorist," said Yuval Diskin, Shin Bet chief from 2005 to 2011. "One man's terrorist is another man's freedom fighter."

Together, the security chiefs' testimonies offer biting criticism about Israel's failure to solve the Israeli-Palestinian conflict, saying military might alone cannot bring peace.

"These moments end up etched deep inside you, and when you retire, you become a bit of a leftist," said Yaakov Peri, Shin Bet head from 1988 to 1994.

"We're winning all the battles," said Ami Ayalon, Shin Bet chief from 1996 to 2000, "And we're losing the war."

Moreh said he wanted his film to change the understanding of the Mideast conflict by featuring the people whose job it was to manage it.

"They are responsible for targeted assassinations, for torture, for getting information," Moreh said in an interview. The criticism they voice "didn't come from the leftists, it came from the heart of the defense establishment. If they say such things, then, OK, there must be something to it."

The other film shortlisted for an Oscar, "5 Broken Cameras," features footage shot by Palestinian farmer and amateur filmmaker Emad Burnat, who bought a camera to film home videos but ended up documenting six years of family life on the backdrop of weekly Palestinian demonstrations against the construction of Israel's West Bank separation barrier through his village of Bilin.

Those demonstrations started the same week his son was born. His film shows his son's birthday parties along with the young boy's developing awareness of the political realities he was born into.

One by one, Burnat's cameras were damaged by an Israeli army tear gas canister, hit by rubber bullets, thrown to the ground by an angry Jewish settler, and smashed in a tractor accident. When his cameras broke, he suffered serious injuries.

"The camera was always my friend," said Burnat, who co-directed the film with an Israeli, Guy Davidi. "I was connected to the camera, the camera was connected to me."

Both films were produced with help from international funds, but also with significant support from the Israeli government. Many governments, particularly in Europe, provide funding to their local film industries.

The Israeli connection caused difficulties for Burnat's movie. Film festivals in Dubai, Qatar and Egypt refused to screen his film, Burnat said. They offered no explanation, he said, but films bankrolled by Israel are generally not shown in Arab countries because of a longstanding Arab cultural boycott of Israeli cinema.

Israel has five main film funds that hand out funding to a pool of applicants. Israeli cinema professionals choose which movies get funded, not politicians.

Even so, film executives say they've felt governmental attempts to exert influence on their artistic independence.

One said local producers have felt pressured to "make films that show Israel in a sweeter light." The executive spoke anonymously because his films depend on government funding.

Meir Bardugo, a spokesman for Culture Minister Limor Livnat, said the minister believes that "Israeli cinema doesn't have to be anti-Israeli," but denied that she intervenes in the content of Israeli films. "If Livnat would interfere, these two films wouldn't get to the Oscars," Bardugo said.

Moreh said he and his colleagues are committed to critical and compelling storytelling.

"Our crazy reality in this region gives us great material," Moreh said. "(Israeli) cinema is alive, breathing, kicking."

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