Do descendants of Jews living in Eretz Yisrael before Zionism have a distinct status or identity in Modern Israel?

Actually, yes. Broadly speaking, there were two types of Jews living in Eretz-Israel in the nineteenth century before the first Zionists arrived: small Ashkenazi Orthodox kollelim (communities supported by donations from their communities of origin abroad), and Sephardi Jews who were the descendants of Spanish Jews who had reached the Holy Land, directly or indirectly, after the expulsion of the Jews from Spain and Portugal in the 1490s.

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