By Middle East correspondent Sophie McNeill and Fouad Abu-Gosh.
Leifer is wanted by Victorian police on 74 charges of indecent assault and rape allegedly involving girls at the Adass Israel School in Melbourne, where she was principal from 2003 until 2008.
Last Thursday, Leifer was ruled mentally unfit to face extradition and had her home detention lifted in a move that shocked and deeply concerned Australian officials and outraged her alleged victims and Jewish community leaders in Melbourne.
Legal proceedings around her extradition were stopped for six months, during which time she will undertake court-ordered psychiatric treatment.
The ABC understands Israeli prosecutors had hoped to argue that because the case was an extradition request, the judge had the authority to continue Leifer’s home detention despite proceedings being frozen.
However, in the Jerusalem District Court on Tuesday, Judge Winograd did not accept legal debate from prosecutor Mattan Akiva over the issue of Leifer’s house arrest being re-instated.
The prosecutor also requested Leifer’s bail be lifted from 100,000 Israeli shekels ($AU35,000) to 200,000 Israeli shekels ($AU70,000).
But Judge Winograd also refused this request, saying that because there was no evidence Leifer had breached her previous bail conditions, the bail should be returned in full.
The prosecution has 48 hours to appeal the full return of the bail.
Leifer’s passport would not be returned to her and she would remain banned from leaving the country.