This fourth feature from Eytan Fox, the Tel Aviv-based director of Yossi & Jagger, points up what's missing from the claustrophobic, navel-gazing films that often reign at Sundance, and typify the American indie repertoire. Made for a modest 1.4 million dollars, Walk on Water tackles big issues in the larger world. Fox weaves a multi-layered drama out of themes ranging from sexual identity and Israeli-style machismo, to co-existence with the Arabs, to forging ties with Berliners descended from Nazis. And he achieves this, for the most part, not with a didactic message, but through quietly engaging characters.

In an attention-hooking opening, tough Mossad operative Eyal (sexy Lior Ashkenazi of Late Marriage) offs a terrorist he's been tailing with steely competence. He's next assigned to track down one of the last surviving Nazi war criminals. When Eyal objects that the man is already old and ill and no one cares anymore, his boss replies, in one of the film's many pungent lines, "I want to get him before God does." In order to discover the war criminal's whereabouts, Eyal reluctantly agrees to pose as a tour guide for his grandson Axel (Knut Berger), who has come to Israel from Berlin to visit his kibbutznik sister Pia (Carolina Peters). By bugging Pia's apartment, Eyal achieves his mission. But he hasn't counted on connecting big-time with both sister and brother (who, it turns out, is gay), which transforms him in amusing and heart-tugging ways.

Israeli cinema is still relatively young-hence, the film's occasional gaucheries. For instance, since Eyal communicates with the young Germans in school-caliber English, the dialogue sometimes sounds stilted-a minor quibble in a film that brilliantly works the intersection of the personal and the political. The deepening friendship between Axel, a day-care worker, and the homophobic Eyal (who doesn't immediately realize Axel is gay) is deftly conveyed in a magical trip to the Sea of Galilee; a shared shower, where Axel reveals extensive knowledge about circumcision patterns; a raunchy conversation in a Berlin bar about gay sex, remarkable for its candor; and Eyal's climactic visit with Axel's family in Berlin. Fox goes in for exploding stereotypes: Pia's attitudes toward her family's Nazi past confound viewer expectations; Axel is a character of rare freshness and grace; Eyal is a tough in need of reinvention. Some viewers may find the denouement too neatly tied up or a feel-good copout (though at least it doesn't insult the intelligence, like the pandering nostrums of studio films). Others will see the ending as a gesture in the direction of hope-for a miracle, such as walking on water.