IF the Gulf war and its aftermath have proved catastrophic to the Palestinian economy, recent events have not left the Israeli economy unscathed either. Although Palestinians have traditionally made up only about 6 percent of the Israeli work force, according to Bank of Israel figures, they are more prominent in sectors of the economy such as construction, where they make up more than half the labor force, and agriculture, where they account for one-fifth.
The curfews imposed on Palestinians during the war, and the new permit system, have made life hard for employers in those fields. ``For years, the economy of Israel has been structured to use huge numbers of Palestinians in agriculture, services, and construction,'' says a foreign diplomat here. ``To have to adapt to half those numbers is very difficult.''
The building industry, for example, which had picked up late in 1990, fueled by the flood of Soviet immigrants seeking housing, came to almost a standstill during the war.
Now, ``on a very, very good day construction is at three-quarters of its old level,'' says Zvi Friedman, spokesman for the Building Contractors Federation. More often it is at half speed.
The citrus fruit industry, meanwhile, whose harvest peaked during the Gulf war, at a time when none of the usual Palestinian pickers were available, lost about $40 million, according to Nadine Baudet-Trajtenberg, a researcher at Bank Hapoalim, Israel's largest bank.
That, she says, is indicative of the wider picture. The war itself cost Israel $200 million in direct rocket hits on housing and an additional $1.8 billion in lost production, she estimates. The war and subsequent developments have meant that ``economic activity was very, very slow in the first quarter of 1991. Even if the trend picks up, we lost a few points of gross domestic product'' growth, she adds.
The Israeli economy's need for Palestinian workers, especially at the low end, is so acute that builders rushing to try to keep up with the tide of Soviet immigrants are demanding that if the government bars residents of the occupied territories, for security reasons, it should allow them to import foreign labor.
So far only 2,000 or so workers have been brought in, less than a tenth of the number construction companies would like to hire from countries such as Portugal and Romania.
The labor shortage in the building sector is so acute, says David Rosenberg, editor of the Israel Business Report, that ``even though employers have to pay fringe benefits and the minimum wage when they hire a Palestinian with a work permit, they don't worry about it.''
In other parts of the economy, however, employers have proved more reluctant to spend more money on hiring a Palestinian legally and to spend the time applying for a permit for their potential laborers.
Instead, especially in the service sector, employers are turning to Soviet Jews, 300,000 of whom are expected to arrive this year.
``Each time I drive to a service station I see this happening,'' says Ms. Baudet-Trajtenberg. ``Where it used to be an Arab at the pump, now it's a Russian.''