A donation – believed to be in the region of £300 – was to have been used to pay travel costs to the capital for Tali Shalom Ezer, a graduate of the film and television department at Tel Aviv University, who directed a short feature film, Surrogate.
SPSC, which campaigns in Scotland against Israel's attacks on Gaza, orchestrated a torrent of e-mail protests from people opposed to the move. But festival organisers refused to budge. EIFF managing director Ginnie Atkinson said not accepting support from one particular country "would set a dangerous precedent by politicising a cultural and artistic mission".
The SPSC then enlisted the support of Mr Loach, well known for his support of Palestinian human rights.
Mr Loach released a statement through the SPSC which read: "I'm sure many film-makers will be as horrified as I am to learn the Edinburgh International Film Festival is accepting money from Israel. The massacres and state terrorism in Gaza make this money unacceptable. With regret, I must urge all who might consider visiting the festival to show their support for the Palestinian nation and stay away."
The following day the EIFF – which has since been in talks with Mr Loach – did a U-turn. It said: "The EIFF are firm believers in free cultural exchange and do not wish to restrict film-makers' abilities to communicate artistically with international audiences on the basis that they come from a troubled regime.
"Although the festival is considered wholly cultural and apolitical, we consider the opinions of the film industry as a whole and, as such, accept that one film-maker's recent statement speaks on behalf of the film community, therefore we will be returning the funding issued by the Israeli embassy."
One hopes that Tali Shalom Ezer will get the money directly for travel expenses, and will show up at the EIFF to spit in Ken Loach's eye (figuratively, of course).