The JNF is trying to recover money from a donor who it says agreed to meet the legal costs of its past dispute with Keren Kayemeth LeIsrael.
Newly-published accounts reveal that the charity spent £886,000 on legal expenses in 2007 plus £289,000 in the year before - while receiving donations worth £344,000 towards the lawyers' bill.
But a footnote records: "The JNF received an undertaking from a donor to reimburse the JNF for the legal fees. At this date of this report the donor had not paid what was due and based on advice, the board believe they are in a position to recover the money."
Samuel Hayek, the JNF chairman, said this week: "Part of the expenses involved have already been paid by the donor and the JNF is confident that the remaining amount will be similarly covered."
The accounts, for the year ending December 2007, cover a period when the charity was headed by Gail Seal, who stepped down as president in summer.
But they are the first to be prepared under Mr Hayek, who came to the charity as chairman in February as part of the resolution of the two-and-a-half year conflict with KKL which cost the two organisations an estimated £4 million in legal bills. In June, Mr Hayek announced a new deal to resume support for KKL's work in Israel.
The new accounts for the first time report the existence of Nes Eretz Yisrael, an Israeli charity set up by the JNF's previous leadership. Between 2004 and 2007, it received "donations of approximately £1 million" from the JNF, which are now the subject of a "full review" by the new JNF board, according to the accounts.
Despite the legal wrangle with KKL, the charity's income held up, with an increase from just over £8 million in 2006 to nearly £8.4 million last year. When donations to other UK charities through the KKL voucher scheme are added, the JNF group's overall income amounted to £15.81 million - compared to just under £15.87 million last year.
Major projects include support for Aleh Negev, a rehabilitatition village for autistic and brain-damaged children and adults near Ofakim, funding new schools, synagogues and other facilities in new communities in the Negev and improving life in the development town of Arad.