The discourse about the Arabian Nights illustrates the ways through which hegemonic poetic and literary discourses crystallized themselves, while developing a set of distinctions as a yardstick for the estimation of literary works, as well as the connections between these various distinctions—namely ‘realistic’ and ‘fantastic’, East and West, and oral storytelling and folklore versus written literature. This article focuses on the discourse about the Arabian Nights in the field of modern Hebrew literature. In turning towards the collection, discussing it and translating some of its sections, the various characters who dealt with it expressed and promoted a cultural and political narrative which saw cultural affinities as a potential basis for broader political cooperation between Arabs and Jews. I will argue, however, that the discourse about the collection illustrates a process of modern Hebrew literature adopting a definition of itself as European and secular literature. I will also argue that the discourse on the Arabian Nights reveals the various directions taken by those who resisted the construal of modern Hebrew literature as a vector in the European- secular tradition. These counter-hegemonic assertions particularly took the form of arguments that the collection was a multifaceted cultural treasure that includes Hebrew layers, or, alternatively, representing it as a model of a modern literary genre, the city-centered anthology.