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With the public reeling and despondent over a pandemic of Palestinian terror, a social danger of cataclysmic potential emerges even closer to home: the highest unemployment figures in the history of the Jewish state.

Workers at southern Israel's Bagir textile plant, once a model of enlightened management and dependable employment, barricaded themselves in their workplace this week, torching bonfires and threatening suicide over the prospect that more than half of the plant's 1,080 veteran workers were on the verge of being sacked.

The plight of Bagir workers was all too familiar in communities across Israel. Unemployment figures released in quick succession Monday told a disastrous story, and there was no reason to believe that the trend would get anything but worse.

The government's Employment Service fired the first salvo, noting that the number of job-seekers - including the college-educated - had soared by nearly two percent in January alone. A host of Jewish population centers were stricken with crippling unemployment. Ominously, however, the 21 communities with the highest levels of job-seekers all belonged to Israeli Arabs.

A subsequent announcement from the Central Bureau of Statistics was even more dire: the total number of unemployed Israelis had hit 259,000, an all-time record. In 2001, the number of jobless jumped nearly 20 percent compared with the year before.

In a staggering plunge from the high hopes and dizzying economic optimism of the 1990s, unemployment had struck 10.2 percent of the workforce, the highest such rate in a decade.

To be sure, the factors that sparked crisis in the Israeli economy were not all home-grown, nor tied to the violence that has bedeviled the nation for nearly a year and a half. According to Ha'aretz social affairs correspondent Ruth Sinai, one of the triggers was the international economic downturn characterized by the steep fall from grace of the once-high-flying high-tech sector and its patron NASDAQ market.

But the far-reaching bloodshed of the ensuing Palestinian uprising exacerbated the slide of a local economy already hit by the declining fortunes of those Israeli industries which were linked to multinational concerns or which looked to the NASDAQ for vital financing. "Because people in Israel were scared, they began going out less, they were unwilling to go places, and thus consumed less," Sinai observes. "A great deal of the decline had to do with foreign investment, with consumer confidence, and of course tourism, which took a severe beating."

Marathon wrangling over the State Budget also acted to undermine the economy. "There was a sense that the government was not going to invest sufficiently in infrastructure in order to create enough jobs to solve the unemployment problem to any significant extent, something which also affects investor confidence and the whole question of the health and vitality of the Israeli economy." Rather than do what was best for the economy, there was a sense among investors and other influential elements that the government was giving in to various interest groups, and therefore doing only what was best for its political ends, Sinai adds.

In the end, what infrastructure projects remain in the budget, among them road and rail-link constructure, may be subject to cuts down the road. "The budget deficit may prove to be too serious to ignore in terms of Israel's credit rating, which can also hit investment. If they then need to cut the budget, the feeling is that the only place left to cut is in infrastructure investment, because all the rest has really been cut to the bare bones."

Labor and Social Affairs Minister Shlomo Benizri has complained of late that the government's resistance to curbing the number of foreign workers has made the task of tackling unemployment markedly more difficult.

"On a simplistic level," comments Sinai, "there's a nearly one-for-one correspondence between the quarter of a million foreign workers and the quarter million enemployed, but this is a huge, huge oversimplification. Both groups are also, in general, a very low skilled workforce. But having said that, it's clear that most Israelis are unwilling to take the kinds of jobs the forieigners are at the pay scale that employers are willing to pay."

Sinai points to Israeli Arabs as the one sector whose plight is directly tied to the influx of foreign workers. "Many Israeli Arabs worked in construction, and they were the ones who most found themselves pushed aside and their places usurped by the advent of foreign workers."

In general, the levels of education and vocational skills are markedly lower among Israeli Arabs than Israeli Jews. "As a result, they are much more vulnerable to downturns in the economy. They are also located in areas where there is little industry. If they live in the Tel Aviv area, they would probably stand a better chance of finding work."

On a wider level, the labor strife at Bagir textiles and other hard-hit industrial plants may be seen as a function of a fundamental transition in Israeli society, from the early social-welfare state to a nation fueled by private enterprise.

"The idea that 'the state will take care of you' or 'the Histadrut [trade union] will take care of you,' is still very prevalent, certainly among people who have worked in the same places their whole lives," she says. "It's hard for them to digest the newer culture of privatization and the idea that people are in business to make a profit. It's not a question of right or wrong, it's a clash of cultures, a clash of ideologies."