"The diamond industry has returned to profitability," Lev Leviev, the leading diamond merchant in Israel told TheMarker recently. "The situation has improved after DeBeers changed its policy and reduced prices. Apparently they needed to be publicly criticized to understand that it can't be the only party in the market to make money," he added.

A year ago, diamond industry leaders in Israel complained that the sector was in the midst of a year-long crisis, and at least 70 percent of all merchants were unprofitable. Some blamed DeBeers, and in particular, a credit crisis in the sector. Leviev was the only voice of criticism heard publicly.

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Leading Israeli diamond merchants are thinking of abandoning their long-lasting relations with the DeBeers cartel, which controls nearly half the world's supply of raw diamonds.

The merchants may forgo renewing their agreements with DeBeers for 2008, based on concern that the cartel will require them to open diamond-polishing operations in Africa.

The demand stems from the countries where DeBeers and other companies produce their diamonds, and these countries want a greater share of the industry.

"If we don't open diamond polishing facilities in Africa, we'll be left with the dregs of the DeBeers diamonds. Therefore, we are looking into alternative sources of raw gems," stated one source.

The DeBeers leadership recently visited Israel and presented changes in policy planned for 2008.

Israel was the third-biggest importer of raw diamonds in 2005, in dollar terms, commanding 16 percent of the market. In second place was India, at 24 percent, and in first, the entire European Union, with 39 percent of the market, according to diamond industry sources.