The present study examined the impact of diglossia, a characteristic of the Arabic language, on the development of phonological abilities in the spoken and the literary language forms. Participants were 571 children from 10 grade levels (1-7, 9, 11 and 12), which were recruited from 10 schools by taking into account two important factors: the accent factor (Bedouins, Druze and Arabs) and the geographical factor (south, Haifa, center and north). All participant were administered phonemic segmentation and phonemic deletion tasks, each comprised of two types of stimulus: spoken and literary words. The results indicated an opposite effects of the stimulus where in the phonemic segmentation tasks, an advantage was found for the spoken stimulus over the literary and in the phonemic deletion task, the advantage was recorded in the literary stimulus. In addition, a significant main effect of grade was found for both tasks. An interaction between grade and the type of stimulus was observed only in the phonemic deletion task. These differences between the two tasks may suggest that they are processed differently via the auditory and the visual modality. In addition, our findings provide evidence concerns the developmental capacity of phonemic awareness. The results, as a whole, support the notion that the effect of lexical distance on phonological awareness depends on modes of stimulus presentation.