The Knesset Finance Committee voted Tuesday to call on the government to give Sderot and eight other communities near the Gaza Strip "conflict line" status.
Officially designating the towns as being on the front line of the conflict would make them eligible for benefits similar to those given in the past to communities on the Lebanese Border, based primarily on tax breaks.
Sderot resident Alon Davidi, who attended the discussion, called the session "superfluous."
"If the city is not in a state of war today, I ask that a brave Knesset Member stand and explain to me what the meaning is of 'conflict line,'" he charged.
The government is expected to discuss the matter Sunday.
Sderot city treasurer Shimon Peretz told the committee that at least 4,000 residents have sought psychological therapy at centers, that "families are full of panic" and 50 businesses had closed their doors.
Ahead of the Finance Committee session, Manufacturers Association of Israel Director-General Yoram Belizovsky called on the committee to give more grants and benefits to factories located in range of Kassam rocket attacks and to provide more incentives to attract industry to the region.
Factories in Sderot and other areas bordering the Gaza Strip suffer damages due to concerns of a direct hit and reduced productivity caused by worker absenteeism and tardiness related to the crisis, as well as an effective embargo by foreign and domestic clients and technicians unwilling to visit the area, he said Tuesday morning.
Clients abroad have even cancelled orders due to doubts as to the factories' ability to meet supply deadlines, and general uncertainty is preventing investment in existing factories, while plans to establish new industrial facilities in the area have been called off, he added.
Increased risk and sinking asset values also have inflated the costs of insurance and financing for the area's industry.
Belizovsky said the government should provide grants to cover the costs of armoring factories against Kassam hits; fully fund the fortification of public institutions (such as schools and community centers); and grant a full exemption on arnona tax for houses and factories.
Furthermore, increased grants should be given to factories located in the area, including a 30% grant through the Investment Encouragement Law - as was given in the past to areas on the front line - and a grant of up to NIS 3,000 monthly per new worker hired, instead of the NIS 2,000 given at present.
A government decision from 2004 granting assistance to the area's residents should be extended another two years and applied in full, and a program should be initiated to attract at least two large factories - with more than 300 workers - that would anchor the area's industry, Belizovsky said.
He also called on the government to reinstate income tax regulations benefiting factories in the region cancelled two years ago; provide state loans and special insurance packages to the area's factories; and compensate factories for both direct and indirect damages.
Additionally, the area in which factories should be compensated should be extended to within at least 15 kilometers from the Gaza Strip, due to the Kassams' increased range, Belizovsky said.