The dream crumbled quietly this week as the last of Yamit's permanent residents moved out. The town was left to newly arrived nationalist squatters who have vowed to resist the Israeli Army's plan to evacuate them.
''We were so sure a few months ago that we would resist evacuation,'' said Mrs. Lucy Brenner, one of the original settlers of Yamit, as she sat amid her half-packed bags. ''Now all the permament residents are leaving peacefully. We're tired. We've had enough.''
For residents who began moving into this shining city on the Mediterranean seven years ago, the dream had turned into a nightmare. They had come as pioneers into the desert to build, to share in a common enterprise of obvious national significance.
They were leaving, disoriented and assailed as ''peace speculators.'' Much of the public considered Yamit residents' demands for government compensation excessive. The residents said they would gladly forego compensation, if they could stay on.
The uprooting of thousands of residents in Yamit and more than a dozen smaller settlements in eastern Sinai is the most painful price being paid by Israelis for peace.
''When we came to Israel from Russia in 1972,'' Lucy Brenner says, ''I left my family and all I knew - and yet I felt good about what I was doing. I was going forward. Now I'm not leaving my family and my husband - we are moving to a nice apartment in Jerusalem - but it's not a step forward I'm taking with my life. It's a step backward.''
It is a similar sense of retreat in the process of nation building that underlines much of the discomfort in Israel over the loss of Yamit and the prosperous farming communities that had been established in what had seemed sterile desert. Regaining that sense of momentum within Israel's shrunken borders will be one of the major tasks facing the national leadership.
Meanwhile, the bitterness that accompanied the withdrawal from Yamit is already beginning to give way to nostalgia.
''Who came to Yamit?'' asks Lucy Brenner. ''People who wanted to build anew, to change their lives. People who wanted to work. That gives character to a city. We built a new society, a good society. There were immigrants from Yemen, and Russia, and everywhere else. There were religious and nonreligious. We built together. If only I could tell you what the country has lost here.''
In a neighborhood on the other side of Yamit, which had been taken over by some 3,000 antiwithdrawal militants, Yamit was again witnessing enthusiasm and a sense of purpose. But this dream had only a few days more to live.
The Army had delayed evacuation of the squatters until all permanent residents had left town so as not to involve the latter in the physical confrontation likely to take place.
The last of the permanent residents is to leave before Passover begins this evening. The Army has indicated that it will not move against the militants, most of them yeshiva students, until the week-long holiday is ended.
Debris and sand have already begun to grip the edges of the abandoned houses, some of which have been looted by Bedouins and contractors working in the area. To walk through the empty streets is to feel sadness - not for the individuals who lived there, but for the shining hopes that Yamit symbolized.