According to the study by the Konrad Adenauer Stiftung, 68 percent of Israelis and 49 percent of Palestinians have a positive or very positive image of Germany, while 23 percent of Israelis and 33 percent of Palestinians viewed Germany negatively.
Researchers conducted the study in December 2014 by calling 1,000 randomly-selected adult Israelis and 1,270 Palestinians in the West Bank, East Jerusalem and the Gaza strip.
The study found that more religious Israelis had a less favourable view of Germany.
While 77 percent of secular Israelis said they had a positive opinion of Germany, 42 percent of Orthodox and 31 percent of ultra-Orthodox people said the same.
80 percent of Israelis thought Germany was an important partner for their country - although more than half agreed that the German government also supported the Palestinian cause.
For Palestinians, differences lay between the two main Palestinian political factions, Hamas and Fatah.
Supporters of Fatah, the party of Palestinian President Mahmoud Abbas, view Germany more favourably with 64 percent expressing positive opinions. Only 37 percent of Hamas supporters said they had good feelings toward Germany.
That might be because 55 percent of Palestinians agreed that Germany offers particularly strong support for Israel's right to exist - a figure that shoots up to 83 percent among Israelis.
Palestinians also had good things to say about their potential political relationship with Germany. Seventy-four percent said they wanted Palestine to have a "close" or "very close" relationship with Germany.
Researchers wanted to test the strength of the two relationships in advance of the 50th anniversary of German-Israeli diplomatic relations in May.
In the years after its founding, Israel refused to have anything to do with West Germany as the memory of the Holocaust was still too raw. But 1965 saw a new beginning in German-Israeli relations
Germany also works closely with the Palestinians and is in favour of a Palestinian state to "stand side by side in freedom and security with all its neighbours, including Israel", the Foreign Ministry says on its website.