A letter of support from the Nature and Parks Authority was part of a petition heard by the High Court to order the ministry to reroute the planned barrier away from Battir village, near Bethlehem.
While the court has issued such rulings in the past to reduce Palestinian hardship from the seizures of occupied land involved in erecting the vast barrier, it is unusual for such cases to pit Israeli officials against each other.
Battir, which abuts the boundary with Israel, is famed for its terraced agricultural fields, irrigated with methods dating back millennia. The United Nations Educational, Scientific and Cultural Organization honored the village for its landscape last year.
Authority director Shaul Goldstein described its involvement in the case as unprecedented.
"It's not every day that we come out against the Defense Ministry in court," he told Reuters.
"We don't object to putting up obstacles to stop terrorists, it's just that we believe here that other methods can be used."
The Tel Aviv to Jerusalem train runs nearby the village, along the 1949 armistice line and no man's land which today demarcates the West Bank.
Some 30 percent of Battir's farmland is located beyond the Israeli railway, with Palestinians secured free access under a decades-old arrangement with Israel.
Citing fear of armed Palestinian infiltrators, the Defense Ministry plans to fortify a fence protecting the train line at Battir with a wall.
Villagers say this will irreversibly disrupt agriculture and wildlife at the site, and were supported in petitioning the High Court by Israeli sympathizers including from Friends of the Earth Middle East and the Nature and Parks Authority.
The International Court of Justice ruled in 2004 that the wall was illegal and that Israel should cease construction.
Israeli army colonel Ofer Hindi, representing the state in the Battir case, argued for the security benefits of the planned section by saying that two villagers were jailed in 2008 for planning to bomb the railway line.
The area is also an access point for Palestinians seeking to work illegally in Israel, and whom the military regards as security threats, Hindi told the High Court.
Wednesday's session ended without the court setting a new date for further hearings nor ruling. In such cases rulings are generally delivered within days, a court spokeswoman said.
JERUSALEM (Reuters) -- An Israeli government environmental agency challenged Israel's Defense Ministry in court on Wednesday over a section of the illegal West Bank wall that threatens an ancient Palestinian farming community.