The release of Omar, which is due in the autumn, follows the Palestinian leadership's victory last year in securing recognition of Palestinian statehood at the United Nations
After his Cannes victory, Abu Assad and his movie appear to be riding high on the zeitgeist.
But he is only too aware of the need for Omar to be a financial as well as critical success.
"I didn't intend Omar to be a one-off," he says, sipping a herbal tea in his living room, the walls lined with his huge library of DVDs. "As Palestinians, we need a viable, creative and thriving film industry, and that's only going to be possible if investors see that they can get a return on their money."
Much is at stake. "We have to create a situation where Palestinians can rely on themselves, give voice to their unique stories, create jobs and market themselves and their cause. Israel is very good at doing that with its 'Brand Israel' campaigns. We can't afford to let them have a clear field."
Palestinians' current reliance on foreign funding, he says, weakens the local industry. After his experiences in Hollywood, he is sure its producers would deny money to any project seen as "pro-Palestinian". But even European money, though available, comes with strings attached.
"You have to employ Europeans on your crew, and their salaries, flights and hotels eat into the budget. The money isn't there on the screen."
Abu Assad hopes Omar's success marks the first step in his efforts to establish a Palestinian version of American Zoetrope, the private studios set up by the US filmmakers Francis Ford Coppola and George Lucas in the late 1960s. Over decades, it has made dozens of movies by top-name directors outside the Hollywood system.
Abu Assad has already taken a number of young Palestinian directors under his wing, to nurture their talent, give them technical assistance and help them find funding.
"The goal is to assemble a stable of Palestinian directors over the next 10 years who will collaborate and create a healthier Palestinian industry. We'll always be a small player but we can maximise our influence and ensure our creative independence."
Nazareth may appear to be a strange place to start a home-grown Palestinian film industry, but the minority inside Israel has already produced a number of internationally acclaimed directors in addition to Abu Assad, including Eli Suleiman, Scandar Copti, Tawfik Abu Wael and Mohammed Bakri.
That record, says Abu Assad, reflects the particularly intense and intimate oppression suffered by Palestinians inside Israel.
"We lost everything. We don't control our land, our lives, the borders, the economy, politics. All we have control over is our knowledge, our talents, our minds. When you lose something important like your right to self-determination, you concentrate on what you have: your imagination."