The source of this distinction is that separating challah is a Torah obligation only in the land of Israel. Outside of Israel, it is only Rabbinic.
Most agricultural commandments apply only in the land of Israel. That is easy to understand since the crops are actually growing in the sanctified land. Yet here the dough acquires its obligation by being kneaded, an act that does not connect it specifically with the land! In fact, this obligation emphasizes the fact that our ability to sanctify the profane through our actions is fully realized only in the Holy Land. The land of Israel is not only the land of sanctity; much more is it the land of sanctification.
This point is connected with the mitzva of challah by the phenomenon of the manna. This miraculous food provided our subsistence during our entire forty-year sojourn in the Sinai desert. Our sages learn that the manna had a remarkable property - it was completely assimilated in digestion, leaving no waste products at all! (Yoma 75b)
In previous columns, we have explained that while a central theme of the commandments is our ability to sanctify the material world through our interaction with it, not all matter has the same potential for this sanctification. The symbol of the unholy is our bodily wastes, which show that our body was unable to assimilate some of the material in the food and use it in our service of holiness. A corollary is that the process of digesting testifies to our ability to realize the hidden potential for holiness in food.
Outside of Israel, the ability to refine the world in this way is limited. Had we subsisted on ordinary food in the desert, we would have been in danger of assimilating not only its hidden holiness but also some of its negative material quality. Therefore, HaShem preferred to provide the sustenance of the Jewish people in a miraculous way, through the manna, which was all holiness.
However, we learn in the book of Yehoshua (5:12) that once we began eating the natural bread of the Land of Israel, the miraculous bread of “manna” stopped falling. In Israel, the “material” is on a higher spiritual level and our ability and obligation to extract its holiness is greater. This finds expression in the special spiritual elevation carried out through the mitzva of challah, whose primary obligation is in the land of Israel.