The statement, which is non-binding, aims to toughen the official campaign against anti-Semitism that has made headlines since the Israel-Hamas war started on October 7 last year.
Intensely debated by lawmakers of the ruling Social Democratic Party (SDP), Greens and Free Democrats (FDP) with the opposition Christian Democrats (CDU), the draft says no group that "questions the right of Israel to exist or calls for a boycott of Israel" should receive public funding.
It says the mounting anti-Semitism is "more and more manifest and violent in far-right circles" and also linked to "left-wing anti-imperialism" groups.
The resolution will be submitted to parliament this week.
The aim is to "protect, preserve and strengthen Jewish life in Germany," according to a version seen by AFP.
Supporters say the statement is needed in response to the growing number of anti-Semitic attacks in Germany since the October 7, 2023 attacks by Hamas which set off Israel's military campaign in Gaza.
Critics say some parts of the text will restrict academic and cultural liberties however.
On top of the finance ban, the text says anti-Semitic groups' access to educational buildings should be limited and in some cases they should even be excluded from lessons or expelled.
Germany universities, as elsewhere in Europe and North America, have seen noisy pro-Palestinian demonstrations since October 7, 2023 and fierce criticism of Israel's military onslaught.
About 100 Jewish artists and intellectuals living in Germany said the proposed text "does not achieve its own stated goals. It will weaken, rather than strengthen, the diversity of Jewish life in Germany by associating all Jews with the actions of the Israeli government."
A rival text drawn up by legal experts has been backed by some 600 university, cultural and civic society figures.
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