In this study Pistachia Palestine (PP) oil was extracted and tested for its heating value, flash point and distillation characteristics. The oil was mixed with diesel fuel in different fraction and the heating value and flash points were obtained. The oil and diesel fuel was characterized by the measurement of their densities and viscosities. The results obtained showed that the oil produced from PP has the potential to act as a fuel or even an additive to diesel fuel. The study reveals the effect of PP oil-diesel fuel blends on the performance of indirect diesel engine (type Lister 8/1). The PP oil-diesel fuel blends were used in test engine operations with a wide range of engine speed at full load condition. Successful results were obtained without any engine modifications. It was also shown that the addition of PP oil to the diesel fuel decreases both the brake power and thermal efficiency of the test engine and increases the brake specific fuel consumption. This is due to the lower heating value of the PP oil compared to diesel fuel.