Apparently, and despite it all, the Israeli public still has nerves of steel. If not, it's difficult to understand the amazing stability of the financial markets. The stock exchange opened and trade began yesterday with only moderate drops; the dollar fell once more to the level it was at before the terror attack in the United States, as if nothing had happened; there is no hysteria in the supermarkets and no long lines at the gas stations, as is the case in the great United States. So perhaps we do have some internal strength, in spite of it all?

A visitor from Mars viewing the situation could expect us to fall into a deep financial crisis, expressed by enormous depreciation, inflationary outbreaks and a collapse of the stock market. After all, the security situation is terrible; the clashes with the Palestinians continue with no end in sight; there are no signs of recovery in the high-tech, tourism or construction industries; and now all of this has been topped off by the biggest terror operation in history, in a country on which we are so dependent in every way, including economically. So how is it that the Israeli economy is behaving with so much maturity?

At midday Tuesday, newspaper editors planned on leading their front page with reports on the 2002 budget proposal, on the "decrees," on the additions, on the continuing currency depreciation and on the gloomy outlook presented by the Central Bureau of Statistics. But then the cards were overturned; terror hit the twin towers of the World Trade Center; and the media agenda changed immediately. Statistics on the Israeli economy were buried in the back pages; and the economic analysts began attempting to assess the effect of the attack on the U.S., world and Israeli economies.

In the short term, the financial markets have been the tone-setters. Their responses directly after the attack were predictable and rational - a weakening of the dollar against the euro, a fall of shares on all of the world's markets and a rise in the prices of bonds, oil and gold. But after a night of digesting the news, during which the financial markets across the world stabilized, the dollar returned to its former price and the stock markets recovered as well.

But one major worldwide concern still remained: the deepening of the recession in the United States. There is concern that the U.S. public, fearing events to come, will lose its self-confidence and, as a result, will reduce its personal consumption - the engine of growth of the U.S. economy in recent years. And if the U.S. economy downshifts, the entire world will suffer from the recession.

Nevertheless, in the face of this fear, logic says that after a few days of apprehension and uncertainty, the Americans will realize that despite it all, this was a one-time event and not a drawn-out war that commands forces and budgets and changes the entire distribution of economic resources. Perhaps then, they will realize that it was a terror incident - albeit of immense proportions - that cannot divert the colossal American economy from its path. For this reason, there is no cause to anticipate large-scale negative effects on the U.S. economy, either with regard to growth or employment.

And in light of all this, what will be the effect on the Israeli economy? The goals of the state budget presented this week are to return the economy to a state of growth, to fight unemployment and create tens of thousands of new jobs and to narrow social gaps.

Even before the terror attack on the United States, these all looked like wishful thinking. The treasury issued an assessment predicting a 4-percent growth rate in 2002, enabling the presentation of a forecast that includes increases in revenues from taxes and, as a result, in government spending. But the Central Bureau of Statistics said this week that the growth rate would be only 0.6 percent this year, so how can we reach a rate of 4 percent next year? And if we add to this the terror attack on the economic nerve center of the United States, then the Finance Ministry's optimistic forecast appears even more detached from reality today.

It is therefore reasonable to assume that the growth rate will not reach 4 percent next year and hence, unemployment figures will not fall. Only the budget deficit will grow, with all of the attendant effects.

Will Bank of Israel Governor David Klein raise interest rates to fight potential inflation in this situation? Klein is not a man who scares easily or takes hasty actions; he isn't easily ruffled by depreciation as long as the pace is reasonable, and there is no proof that inflation is out of control.

In recent years, it has become clear that depreciation does not automatically lead to price hikes because there are no longer automatic salary increases and the recession also has an effect. Therefore, if it turns out that the average Israeli does have strong nerves, does not panic needlessly and doesn't make hasty actions in the markets, then inflation won't rear its head and Klein will have no reason to raise interest rates.

If this is the case, then it is all down to the strength of our nerves.