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This week the parliamentary commission that investigated social disparities in Israel published a 55-page report dealing with the reasons for the increase in the socioeconomic gaps in Israel over the past 20 years. Even though the commission included all the Knesset members who describe themselves as "socially oriented" - from the chairman, Ran Cohen (Meretz) to the militant Amir Peretz (One Nation) - they arrived at the same conclusion as the wicked economists did years ago: The Israeli economy has exhausted its ability to raise taxes on work and to increase the transfer payments.

It turns out that even though the social service budgets (education, health, housing, immigrant absorption and National Insurance Institute allowances) increased dramatically in the past 20 years (from 28 percent of the state budget 20 years ago to 54 percent today), the social gaps only became wider, with the result that Israel now finds itself in an especially bad place in terms of inequality between rich and poor.

About 30 or 40 years ago, Israeli society was marked by greater equality. But the past 20 years saw a very large increase in the gaps in economic income - meaning income from work, capital and pensions. In 1979 the index that measures the level of inequality stood at 0.43, whereas in 2001, it had risen to the dangerous level of 0.53. How did this happen?

l The territories. Israel invests prodigious sums in the territories, in building settlements, constructing bypass roads, maintaining the security of the settlers, and giving them benefits of various kinds and tax breaks. Obviously, if a preferred group is given surplus resources, there is no money left for the other missions. Owing to political limitations resulting from the composition of the parliamentary commission headed by MK Cohen, it did not address this central point.

l The war. The situation in which the economy has found itself in the past two years precludes the renewal of growth. As a result, unemployment will increase and with it, inequality. When the state of war continues, and even gets worse, there is no chance that the economy will be able to escape the recession. In other words, the political-security situation is highly instrumental in causing the gaps in the society.

l The infrastructure. Owing to the huge investments in the territories and the administration of the war, not enough money remains to invest in the physical infrastructure - highways, interchanges, sewerage, water - creating a situation in which the periphery (mainly the south of the country) lags behind, cut off from the center, adversely affecting quality of life and making it very difficult for residents there to find good jobs in the center.

l Education. Not enough money remains to improve the educational level in the periphery. The farther one gets from the center, the lower the level of education. The direct connection between level of education and level of income has already been proved.

l The foreign workers. The entry of large numbers of foreign workers into Israel in the mid-1990s, instead of the Palestinians, had the effect of lowering the wages of manual workers, as the foreigners were willing to work for extremely low pay. The result was that the foreign workers pushed the manual workers into the cycle of unemployment, in which they became recipients of guaranteed income payments. Instead of the state ensuring that hiring a foreign worker would be expensive and not worthwhile, the current situation is the exact opposite. Today it is 40 percent cheaper to employ a foreign worker than to employ an Israeli, and just a few days ago, the Knesset's Labor and Social Affairs Committee blocked a proposal to impose a levy on the hiring of a foreign worker, because the interests of the manpower companies (some of whose owners have close ties to government), the contractors and the farmers are stronger than all the talk about the battle against unemployment.

l The ultra-Orthodox. Eighty percent of ultra-Orthodox men do not work - a dramatic increase from 50 percent in the 1980s. They live in poverty as yeshiva students at the expense of the state budget. Indeed, even if they want to do productive work they are unable to fulfill their wish, as the schools they attended did not teach them the essential subjects for earning a respectable living: neither English nor mathematics, neither history nor the sciences.

When the gaps between the rich and the poor constantly increased during the past two decades, the state came up with a clever idea to salve its conscience: raising taxes on work and diverting the money to increasing the transfer payments, especially the National Insurance Institute (social security) allowances.

However, it turns out that this far-fetched solution failed. Despite the high taxes that are imposed mainly on the two highest socioeconomic percentiles, and despite the very large transfer payments to the lower percentiles, the level of inequality in terms of available income was also aggravated in the past 20 years. The result is that today, the taxes paid by a working person are so high that they undermine the desire to work and initiate business, and they encourage emigration, too. At the same time, a generation has grown up here that has become accustomed to living on allowances and on guaranteed income without working - and these gaps are still increasing and thus unraveling the delicate fabric of the society.