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The estate includes many of Kafka's papers which Brod brought with him to Palestine when he fled the Nazis in 1939.
The court rejected an appeal by the daughters of Brod's heir that they be allowed to keep possession of the papers, which are currently deposited in bank vaults in Tel Aviv and Switzerland.
The ruling was handed down in June, but only published on Monday.
"Brod wanted his estate to end up in the trusted hands of a body that was appropriate to his ambitions as a writer," the court wrote in its decision.
"He did not want his estate, and everything in it, to be sold to the highest bidder, but to find its appropriate place in the literary and cultural sanctuary that was his life's work."
It was the third and final rejection of the appeals by the daughters and granddaughters of Brod's secretary, Esther Hoffe, who argued that the papers were Brod's private property which they had inherited legally.
The ruling is expected to prevent the further sales of manuscripts from the estate in public auctions outside Israel. The original manuscript of Kafka's novel "The Trial" was auctioned for $2 million in 1988.
Kafka died of tuberculosis in an Austrian sanatorium in 1924. He named Brod as the executor of his estate, with the specific instruction that his papers be burned. Brod defied the instruction, however, and brought a suitcase of manuscripts, letters and other papers to Palestine, when he fled the Nazis entering Prague in 1939.
Brod died in Tel Aviv in 1968. The legal struggle over the papers began in 2007, when a Haaretz investigation revealed that his papers, including manuscripts by Kafka, were in private hands and being stored in unsuitable conditions.
The National Library sued Hoffe's daughters for the papers in the wake of the Haaretz investigation. The suit arrived at the Supreme Court on appeal after two lower courts had ruled in the library's favor.
"It is highly regrettable that, despite Brod's wish, as expressed in interviews with him, to be appreciated in Israel where he lived and worked for almost 30 years, his literary estate lay untouched for dozens of years in bank vaults or other safes," the panel of three Supreme Court justices ruled.
They called on the National Library to "do everything possible to expose the wider Israeli public to the work of Brod."
It is clear from the ruling that the library promised to translate his German-language writings into Hebrew and to publish an anthology based on the papers in the estate.