A trial commenced in Jerusalem on January 1, 1954, revolving around a libel case. Dr. Rudolf Kastner, a government employee and former Chairman of the Jewish Rescue Committee of Hungary during the war, had been accused by Malkiel Greenwald of collaborating with the Nazis. Greenwald, a Polish immigrant since 1938, published a newsletter specializing in exposing corruption within the ruling Mapai Party. In a 1953 edition of his newsletter, he charged Kastner with profiting from Hitler's loot and murders, prompting the government to file a lawsuit against Greenwald for defaming a public servant.

Certain details of the case remain contentious to this day, yet the fundamental narrative is clear-cut. Adolf Eichmann, responsible for the extermination of Hungarian Jews, proposed a trade to Joel Brand, an associate of Kastner: war material in exchange for the lives of the Hungarian Jewish population. Brand traveled to Turkey, only to be detained by the British in Syria, and Eichmann's proposal was subsequently rejected by the Allies. Meanwhile, Kastner had negotiated with Eichmann, who, to demonstrate his sincerity, allowed 200 families to leave the country unscathed. Kastner provided a list of 1,685 Jews, including 388 from his hometown of Cluj, all of whom were permitted to depart for Switzerland in two special trains.

Throughout the trial, Greenwald's attorney, Shmuel Tamir, a former Etzel member and Cherut party affiliate, queried Kastner on why he had not warned Hungarian Jews of their impending deportation to Auschwitz. Kastner responded, stating that he was concerned that doing so might jeopardize the ongoing negotiations that he hoped would spare the majority of Hungary's Jews. As to allegations of Kastner's personal gain from the negotiations, beyond possibly saving some of his relatives, evidence proved Kastner had arrived in Israel destitute.

Judge Benyamin Halevi issued a 300-page ruling on June 22, 1955, concluding that Kastner had not taken measures to warn Hungary's Jews. Halevi stated that Kastner had essentially sold his soul to the devil, leading to the dismissal of the libel case. The verdict sent shockwaves through Israel, causing Sharett's government to collapse.

Kastner's life met a tragic end on March 15, 1957, when he was ambushed and killed outside his Tel Aviv apartment by three assassins, later identified as supporters of the outlawed far-right militia, Lechi. In a turn of events, the Supreme Court overturned the lower court's decision in January 1958.