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The documentary, which is a work of Israeli Palestinian woman director Ibtisam Salh Mara'na, was chosen as the winner of the main prize by a four-member jury.
It is about Duah Fares, a young woman from the Druze village ofSagur in the Galilee, who finds herself in the middle of a complicated conflict in which the tradition and values of her society clash with her brave efforts to choose her own way of life.
"In the current geo-political circumstances where it would be so much easier to ask the question: 'why does the other hate me,' the author asks something completely opposite: 'what is it with me, with my culture and tradition that can provoke the other's hate?'" said the jury in a statement.
"We find that in the film 'Lady Kul el Arab' these reasons are explored with sensibility, subtlety and commitment of a talented and courageous filmmaker," it said.
The best film award in the regional competition went to the Serbian film "Kavijar koneksn" (The Caviar Connection) made by Dragan Nikolic.
The film portrays the lives of two brothers trying to maintain a family's subsistence from fishing in the Danube. There are fights with other fishermen over demarcation lines and often he who gets up earliest wins.
The Little Stamp award, which is given to the best films made by authors younger than 30 years old, went to the Turkish film "On the Way to School" by Orhan Eskikoy and Oezguer Dogan.
The film follows the trials and tribulations of a Turkish primary school teacher sent to a remote area of Turkish Kurdistan to teach Kurdish children, who don't speak Turkish.
"Silent Removal" by German Wolfram Dogan won a special jury award.
The "Movies That Matter" award, which is given to films promoting human rights, was granted to Danish Anders Ostergaar's work "Burma VJ - Reporting from a Closed Country."
The fifth Croatian documentary festival, which began on Feb. 23,screened 54 films competing for awards in the international and regional categories and concluded on Saturday evening with the award-giving ceremony.