This study examines the effectiveness of the School Mediation Intervention (SMI) in preventing mental health problems and promoting social functioning among children living in armed conflict. The participants were 225 Palestinian children in the Gaza Strip, divided into the intervention group (n = 141) from schools where the SMI was implemented and the control group (n = 84) from a school with no SMI implementation. The SMI aimed at improving pupils’ social functioning through methods of problem solving, conflict resolution, and dialogue skills and at enhancing mental health through caring for peers and preventing disruptive and aggressive behavior. Older students acted as responsible school mediators and teachers as supervisors. Participants reported symptoms of posttraumatic stress disorder (PTSD), depression (CDI), psychological distress (SDQ), and quality of friendship, prosocial behavior, and aggressiveness at baseline at the beginning of school year (T1) and at postintervention 8 months later (T2). The results defeated the hypothesis that participating in SMI would decrease symptoms and increase friendship quality and prosocial and nonaggressive behavior. Instead, SMI was effective only in limiting the deterioration of friendships and prosocial behavior across the intervention period. The results are discussed in regard to interventions tailored for children traumatized in armed conflicts.