The show captivates the moment you walk in the door. It fascinates, spurring you on to make your own associations. Like a living spirit, his eyes scintillating with terror, an almost naked man jumps out at you. He is "The Wandering Jew", Ahasver, on Shmuel Hirszenberg's enormous mural. A pallid old man with a cry of ill-tidings written across his face. He rushes over corpses, naked dead bodies, men and women lying piled in a gorge of huge, dark crosses towering aslant into the skies.

At first glance the forest of crosses in the painting from 1899 awakens associations with the concrete blocks of Peter Eisenman's Holocaust Memorial. But this early vision of a Jewish-Christian Apocalypse, born out of the experience of Russian pogroms, is harsher, more suggestive. Indeed, in the exhibition "The New Hebrews: A Century of Art in Israel" which opens today in Berlin's Martin Gropius Bau museum to mark the 40th anniversary of the establishment of diplomatic relations between West Germany and Israel, all the cuts and contrasts are harsh and suggestive – yet for all that often astonishingly playful.

At the end of the exhibition on the first floor of the museum you can turn your gaze back and look the Wandering Jew in the eyes again – through a tiny slit at the other side of the broad central hall. The slit is in one of seven rust-brown pillars that Micha Ullman has placed along both sides of the central hall. Sculptor Ullman, creator also of the ingenious invisible underground library commemorating the book burnings of 1933 at Berlin's Bebelplatz, sets the row of pillars like an imaginary border from north to south. The Berlin Wall once ran directly to the north of the Martin-Gropius-Bau.

Red sand from Israel fills the cavities of the pillars and forms their points. These forms could also be watchtowers – pre-1945, pre-1989, today. At the same time, their open north-south line also marks the frontier between Orient and Occident, between East and West. A demarcation line that has vanished into thin air, yet still remains very real. Berlin–Israel: to the east of the Martin-Gropius-Bau the "Topography of Terror" exhibition stands on the site that once housed the headquarters of Himmler's Gestapo and SS.

In the exhibition a room-size video triptych shows witnesses in the 1961 Eichmann trial in Jerusalem, along with the reactions in the courtroom and on the streets of Israel. We see the accused in his famous glass booth through the glass of a replica booth set up in front of the projection screen – or sit inside it ourselves. In the knowledge that just one lifetime ago the real Obersturmbannführer Adolf Eichmann sat in the building next door.

The tribunal scene is impressive, but not emotionally overloaded. The intelligence and good taste of the curators, Berlin-based Doreet LeVitte Harten and Yigal Zalmona from Berliner Festspiele's partner institution, the Israel Museum in Jerusalem, deliver this grand show from the temptations of sensationalism, although it is certainly staged with an eye for sensation. If we turn our gaze from the Eichmann trial and the two rooms dedicated to the Shoah to the adjacent theme of "Immigration" (to Palestine, before the founding of the state of Israel) and "Religion", we see – in the bright light blue of the Israeli flag, above the last doorway at the end of a flight of rooms – a neon sign in Hebrew. Tel Aviv artist David Ginton's variation on an installation by the Italian Lucio Fontana, it proclaims after Nietzsche: "The End of God".

Is this declaration of the end of religion merely meant to be frivolous, secular, anti-fundamentalist? Or does it voice all the tragedies of human existence, not only the Shoah? There is certainly a touch of irony involved when the curators fix one particular guest contribution to the last wall of the last room, dedicated to the theme of "Alternatives". This is the "Black German Flag" designed 30 years ago by the American James Lee Byars, who died in 1997 in Cairo, while in Berlin on a grant. Onto the black material he embroidered the question: "Send all the J(ews) back from I(srael) to G(ermany)?"

This daring exhibition is a sensation – for Germany, for Israel, for visitors from all over the world. Never before, not even in the famous Shrine of the Book in Jerusalem, has the more than 2,000-year-old Temple Scroll from the Qumran caves on the Dead Sea been publicly displayed. Above all, however, in the 57 hard-fought years of the state of Israel, there has never been a comparable exhibition of Israeli art, although it should be added that despite the patronage of German President Horst Köhler and Israeli President Moshe Katsav, this is no state art show.

"The New Hebrews: A Century of Art in Israel" is a pointed title. As the loan of the Temple Scroll suggests, the exhibition is indeed about much more than a single century, and about more than just Israeli art. With over 700 exhibits, the show covers the entire span from the cultural and religious roots of the Biblical Israelites (or Hebrews), to the dramatic events of the present. Balancing equally on documents and works of art, it leads us through to the political and cultural history of the modern Israelis and to the rebirth of written and vernacular Hebrew.

This is a language whose characters and sounds originate from the ancient world, a language that, after 2,000 years in the Diaspora, no longer existed outside the synagogue walls. In the multicultural melting pot of Israel, where despite the political influence of Orthodox Judaism, two thirds of the citizens describe themselves as secular, Hebrew has become a true common denominator. Thus the "New Hebrews" in the land of Israel, which is both much older and much younger than the century or so that is the focus of attention here.

The exhibition shows in all its complexity how Israel became what it is. A history reeling and dancing between tragedy and folly, desperation and faith in the future, is shown in an astonishing way. The curators have symbolically divided the 20 rooms on the first floor of the Martin-Gropius-Bau museum and the gallery running round the central hall into 15 chapters, themes and motifs.

The "Wandering Jew" hangs in the first room, named "Jug of Tears", and theme and place interweave right from the start. The Martin Gropius Bau was originally Berlin's Museum of Arts and Crafts. Between 1906 and 1912 Jews in Tel Aviv founded a similar institution, one of whose supporters was Max Liebermann in Berlin. The Bezalel School became what is today Israel's most important art academy, and in 1912 the Bezalel Museum opened a room with the "Wandering Jew" and photographs of Russian pogroms. It was called "Jug of Tears" and has been faithfully reconstructed here in the exhibition.

In Berlin the horrors of the past also resonate with the grim, powerful, semi-figurative pictures by the young painter Avner Ben Gal, "Eve of Destruction", 2001. There is a threat here in the silhouettes of Israeli soldiers. Ben Gal is one of the 60 contemporary artists among the 127 exhibited. Abrupt contrasts occur again and again. First, up until the end of the 1920s, the Jewish immigrants take up the colourful ornamental style of their Arab neighbours, even posing in photographs as Bedouins or harem girls, blending this pose with Eastern European Yiddish fairytale traditions à la Chagall.

Then – in painting, architecture and photography – come the influences of German Expressionism, Bauhaus, and a New Objectivity that soon spirals into pathos all across Europe. It is bewildering to look at 1930s photographs of sportsmen and women that could be by Leni Riefenstahl, alongside martial poster heads and labour heroes where only the Hebrew characters tell us that this is not Nazi or Stalinist propaganda art.

As well as the age-old fear of persecution, the migrants' own vision of the "New Man" also fuelled Jewish immigration to Israel. But the driving force above all others was the idea of modern Zionism laid out by Theodor Herzl at the end of the nineteenth century. Here in the Martin-Gropius-Bau we are shown impressive, rare documents, such as the original programme of the first Zionist Congress in Basel in 1897, hand-written by Herzl's strategist, author and psychiatrist Max Nordau, a plea for a "legally secure homeland in Palestine". And there is a 60-minute film made in 1913 for the eleventh Zionist Congress in Vienna, "The Life of the Jews in Israel".

The Zionists still hoped for a peaceful, secular coexistence with the Arab Palestinians. So why are there no Palestinians in this exhibition? Doreet LeVitte Harten invited Arab artists from Israel, and they would have liked to come to Berlin – but not under official Israeli patronage. Nonetheless, she makes sure the historical fault lines of the Middle East cannot be overlooked.

One large painting of young Israeli soldiers, men and women, mourning after an attack is called "Lost Youth". There is a bleeding "Wall Wound" made of fruit gums and a photo series from the occupied territories shows the words "Ghetto Abu Dis" sprayed on the new wall. In a documentary video border guards in tanks refuse to allow a Palestinian woman to be transported to hospital. Machine guns hang from a chandelier. The Promised Land may still exist, but it sometimes turns into deserted utopian landscapes, as in the calligraphic, computer-like paintings of Yehudit Sasportas.

Outside, behind the Martin-Gropius-Bau and beside the "Topography of Terror", the artists' group ZIK presents an illuminated container full of broken glass, whose title, "9-11-1938-2005", alludes to more than just the "Night of Broken Glass". Back in the museum there is still more to discover: a manuscript stained with the blood of murdered Prime Minister Yitzhak Rabin. It is, it was the text of a Hebrew song of peace.

"The New Hebrews: A Century of Art in Israel", Martin-Gropius-Bau, 20 May to 5 September, open daily except Tuesday, 10am to 8pm. Catalogue 25 euros.

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The article was originally published in German in the Tagesspiegel on 18 May, 2005.

Peter von Becker is a journalist and editor of the Tagesspiegel.

Translation: Meredith Dale.

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