The Jerusalem District Court ruled on Wednesday that Malka Leifer remain in custody while the district psychiatrist determines whether she is fit to stand trial

Australia wants the 54-year-old extradited, after she fled to Israel after being accused of abuse.

She has avoided court over allegations linked to her time as head of Adass Israel School's girls' campus in Melbourne in the 2000s.

She was arrested in Israel on Monday, following an undercover investigation at Interpol's request, on suspicion of obstructing court proceedings by attempting to hide evidence.

An Israeli court previously stopped extradition proceedings after determining she was not fit to stand trial. Police say they have indications she was pretending to be suffering from a mental illness to avoid extradition to face 74 charges in Australia.

The move brought hope for Leifer's alleged victims in Australia, including Nicole Meyer.

Mrs Meyer's sisters Dassi Erlich and Elly Sapper have also accused their former teacher of abuse.

"The arrest means many things, starting with a humungous burst of hope after so many stagnant months of her continuing to be officially mentally unwell," Mrs Meyer said.

In 2016, an Israeli court halted proceedings to extradite Leifer after finding she was not fit to stand trial due to mental illness.

Victorian Premier Daniel Andrews and Prime Minister Malcolm Turnbull both raised the case with Israeli Prime Minister Benjamin Netanyahu during visits last year.

Leifer taught at and was the principal of the Adass Israel School from the early 2000s until 2008.

Australian Associated Press