The legislation, adopted by 62 votes to 55, makes Hebrew the country's national language and defines the establishment of Jewish communities as being in the national interest.
The Arabic language was granted only special status.
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The law speaks of Israel as being the Jewish historical homeland and says Jews have the right to self-determination there.
However, a deeply controversial clause that had been seen as more specifically legalising the establishment of Jewish-only communities was changed after it drew criticism, including from Israeli President Reuven Rivlin.
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The legislation becomes part of the country's basic laws, which serve as a de facto constitution.
"It is a decisive moment in the history of the state of Israel that inscribes in stone our language, our anthem and our flag," Israeli Prime Minister Benjamin Netanyahu said after the vote on the legislation, backed by his right-wing government.
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A range of opposition members denounced the vote, with the head of the mainly Arab Joint List alliance Ayman Odeh denouncing it as "the death of our democracy".
Arab citizens account for some 17.5 percent of Israel's more than eight million population.
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