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JERUSALEM (Reuters) - One of the earliest decisions the Zionist leaders of the new state of Israel made in the late 1940s was to strike a deal with ultra-Orthodox rabbis from Eastern Europe to help preserve a traditional Jewish practice almost wiped out in the Holocaust.
Seeking political support from the rabbis, Prime Minister David Ben-Gurion agreed to exempt about 400 pious students from military service so they could devote themselves to lifetime study of the main Jewish scriptures, the Torah and the Talmud.
It seemed a small concession at the time.
Over six decades later, the once threatened ultra-Orthodox are a fast-growing underclass making up about 10 percent of Israel's population. The original handful of students has ballooned to about 60,000 men supported by state handouts, occasional work and donations from family and friends.
Most ultra-Orthodox, whose men stand out due to their old-fashioned beards, black hats and long coats, say nothing should change. All men who want to devote their lives to Torah study, their rabbis say, should be able to do so.
But public opinion has turned strongly against the "Haredim" - a Hebrew term meaning "those who tremble before God" - as they have taken over neighborhoods and imposed their rule, with zealots separating the sexes in buses, harassing women and spitting on little schoolgirls for wearing T-shirts.
The charge by many secular Israelis that the Torah students had become draft dodgers sponging off the state got a boost in February from the Supreme Court, which ruled that their military exemption was unfair and ordered reforms by August.
"We've reached the point in this country where people can't put up with this anymore," said Haim Amsellem, a parliamentary deputy who was expelled from the ultra-Orthodox Shas party two years ago after criticizing his fellow Haredim for defending the Torah students against all critics.
"The best should study and the rest should work," he told Reuters in his Knesset office.
Even the International Monetary Fund (IMF) has stepped in, warning in April that economic growth could slow markedly if Israel continues to let so many men - most of them fathers of large families - shun work and military service to study Torah.
Critics such as Hiddush, a non-governmental organization that promotes religious freedom and equality in Israel, estimate the system costs the state three billion euros a year.
Prime Minister Benjamin Netanyahu's multiparty coalition is coming under increasing strain as it seeks to come up with a revised draft law by late July that steers most Haredi men into the army and the world of work, without provoking the ultra-Orthodox into noisy protests and opposition.
The problem was so divisive for his coalition, which depended on two small ultra-Orthodox parties for its majority, that he was widely expected to call early elections this autumn to have a broader coalition to tackle this and other challenges.
Netanyahu managed to bring the large Kadima party into his coalition in May, making it so broad that it no longer needed the ultra-Orthodox votes. But even now, opinions are divided over whether he will really roll back the religious welfare state the Haredim have carved out for themselves.
"There is a groundswell of popular opposition to the Haredim," said David Landau, former editor of the daily Haaretz and author of the book "Piety and Power" on the ultra-Orthodox.
"If Netanyahu puts his foot down, it could make him seriously popular."
Shahar Ilan, vice-president of the Hiddush NGO, doubted Netanyahu had it in him, however. "We have the historic chance to solve this problem, but I don't think he has the courage to do it," he said.
Haredi leaders staunchly defend the military exemption in public while privately considering their options in the face of the huge pressures.
The Haredim, whose strict practices and isolated lifestyle recall the shtetls, or villages, of pre-war Poland more than the modern-day consumer society that buzzes all around them, maintain that Torah students earn their military exemptions by making up the spiritual rear guard of the army.
Their argument that devotion to scripture study helped Jews survive persecution for two millennia has some official support, including from the Chief Rabbi for Israel's Ashkenazi Jews, who come from eastern Europe where ultra-Orthodoxy began.
"We believe the strength of the Jewish nation comes not only from weapons," Yona Metzger, an ex-army captain who nevertheless wants to see Haredim serving in the military, told Reuters in his Jerusalem office.
"We believe that studying Torah helps the army to win."
But the idea that a majority of Haredi men should study Torah for life - about 60 percent of them now do - is a modern innovation made possible by the creation of Israel.
"Look at the ultra-Orthodox in New York, London or Paris - they go to work," said Yedidia Stern, senior research fellow at the Israel Democracy Institute. "Before the Holocaust, the best and the brightest studied Torah but they were not the majority."
"Even Maimonides was a doctor," he said, referring to the leading Jewish philosopher and Torah scholar of the Middle Ages.
"This is the first welfare state in Jewish history, and the ultra-Orthodox have figured out how to get as much out of it as they can," said one mainstream Jerusalem rabbi, who asked not to be named to avoid being seen criticizing the Haredim.
"And my taxes are paying for them!" he added.
Army reservists have set up makeshift "suckers' camps," including one outside the Knesset, to demand the Haredim serve like everyone else. Some politicians and retired military officers have visited them to show their support.
Israel's electoral system has worked to the advantage of the ultra-Orthodox because parties need only two percent of the vote to win seats in the Knesset. This has boosted the influence of small parties by encouraging coalition governments that can become hostage to their demands.
"The Haredi parties are a minority, but they have been part of the political majority for 35 years," Ilan said. They allow prime ministers to decide most issues as long as they agree to the demands that matter to them, and tend to vote as a bloc following recommendations from their "rebbe" (master).
With their political role and high birth rate, the ultra-Orthodox have carved out a special niche in Israeli society. The majority of men studying Torah full-time pass their days in packed study halls where they read, attend lectures and engage in often raucous debate over the ancient texts.
They live off small stipends from their yeshivas (schools), from their wives' meager wages as teachers in Haredi schools and state child support payments for their large families.
Because Israel pays subsidies for each individual student and child, there is an economic incentive for yeshivas to take in more students and couples to have more children.
Jerusalem's Mir Yeshiva, the largest in Israel with 7,000 students, has more than tripled in size over the past two decades and hopes to triple its enrolment again in future.
The Haredim mostly live in self-imposed ghettos like Mea Shearim - a rundown section near Old Jerusalem where wall posters warn women "Please do not pass through our neighborhood in immodest clothes" - or newer districts like Kiryat Belz in north Jerusalem or the town of Bnei Brak outside Tel Aviv.
The streets are closed to traffic on Saturday and large families stroll around in their finest clothes wishing each other "Gut Shabbes" ("Good Sabbath" in Yiddish). The men's Sabbath best clothing includes a black silk coat and a large round fur hat, or "shtreimel," even in stifling summer heat.
The folkloric calm is deceptive. Any outsider who inadvertently drives into the area or walks around taking pictures - both activities banned on the Sabbath - risks being bundled out of the enclave in short order.
Efforts to convince the Haredim to volunteer for the army, which serves as a melting pot for Jews who came from far and wide to live here, have had little success.
About 1,300 men serve in a special battalion where the food is strictly kosher, prayer times are strictly observed and women soldiers are kept far away, according to figures from Hiddush.
But most Haredi families fear military service will secularize their children.
"We have to protect them or they will lose their religious identity," said Yecheskel Friedman, a father of eight who works at the imposing main synagogue in the Belz Hasidic enclave in north Jerusalem.
From the army's perspective, the Haredim's strict religious ways could make them more trouble than they are worth. Another option to serve in a civilian capacity has attracted only about 1,100 men.
There are other factors keeping the ultra-Orthodox apart. Because they have only a purely religious education and have never studied secular subjects such as English or computer science, most Haredi men are unemployable.
According to some estimates, up to two-thirds of Torah students feel caught in a closed system and study because they have nothing else to do.
"You can't leave. And even if you do, you don't know what you can do. It's a vicious circle," said Amsellem, who is also working on proposals to help more Haredim into the work force.
Some men have tried to leave the system by enrolling in special Haredi vocational colleges that teach marketable skills, but almost half of them have dropped out, Ilan said, citing figures from Hiddush. There are more women than men among the 7,000 students at these colleges.
Not all Haredi men shun productive work. According to the Bank of Israel, employment among married men - which, since they marry young, means most adult males - rose to 38 percent last year compared to 31 percent in 2009.
With the clock ticking towards the expiration of the current conscription law on August 1, Netanyahu on Monday disbanded a panel of experts and parliamentarians charged with formulating reform proposals after religious leaders protested against the anticipated findings.
But the committee issued recommendations on Wednesday anyway, calling for a sharp reduction in the number of military service exemptions granted to religious seminary students down to only 1,500 by 2016. It also proposed backing up the policy by levying stiff financial penalties against any future draft evaders.
Netanyahu's move drew a veiled threat from Shaul Mofaz, leader of the Kadima party, to quit the coalition unless conscription reform is implemented.
From the non-Orthodox point of view, the time to reform the draft law and keep the Haredim from becoming an uncontrollable drag on the economy is now - before their influence in politics and society grows even further.
About one-quarter of all first grade pupils are from ultra-Orthodox families, a signal that their proportion of the Israeli population is set to more than double in another 20 years or so.
"Haredi power has not yet reached its peak," said Landau, the editor. "The results of the Haredi baby boom will be felt in future elections. This is the last moment you can contemplate a government without Haredim."
Hiddush's Ilan said Israel had to stop subsidizing the Haredim's mass opt-out of the military and productive work.
"This is what we need to save the Israeli economy," he said. "If we don't do it, we are walking into a catastrophe with open eyes."
Editing by Sonya Hepinstall