In a shimmering Tel Aviv luxury hotel overlooking the Mediterranean Sea, the country's banking and financial elite mingled over cocktails recently with foreign investors as they watched Donald Trump on a live telecast praise the strength of the Israeli market. Across the street from the David Intercontinental, meanwhile, more than 1,000 people protested the country's premier business conference, chanting "Welfare Before Wealth." Welcome to 21st-century Israel in microcosm. Once idealized as a socialist paradise, the Jewish state is increasingly becoming a country of two classes - those who have soared in the increasingly capitalist economy and those who have stumbled in its wake. Despite its much mythologized egalitarian image, Israel has always experienced economic gaps. But now the divide between haves and have-nots has grown to alarming proportions. If economic policies and other factors have spawned a privileged class, they also have produced a deeply entrenched underclass populated by the elderly, Holocaust survivors, Arabs, immigrants, haredim, single parents - even two-income families. The flip side of Israel's yawning economic divide is a zone of despair that is also a living laboratory for job-training programs and other initiatives aimed at leveling the playing field. They have produced mixed results. One of the many faces representing this underclass is R., a poverty-stricken, 43-year-old mother of four. At a Tel Aviv-area hospital, she weeps in the corridor as her children are being treated. "Things are very hard for people like us; There is no life, no holidays, no Shabbat," said R., who lives in Holon about eight kilometers from the hotel hosting the business conference. Like others interviewed for this series, R. was so ashamed of her plight that she asked that her real name not be used. Her apartment was repossessed recently by the bank, and now she faces eviction from another one because she cannot pay the rent. R. stopped working full-time as a government clerk when two of her children became chronically ill. She and her family now live mostly off her husband's monthly salary of NIS 3,200 as an employee of a moving company. Government child allowances and her occasional work cleaning the staircases of apartment buildings bring the family's monthly income up to about NIS 4,200, officially putting the family among the 20 percent of households living below the poverty line. Poverty rates reached a new peak in 2005, although they leveled off in 2006, according to statistics from the National Insurance Institute. According to institute findings, one of every four Israelis lives below the poverty line - that's 1.6 million people. Thirty-five percent of children are living in poverty, leaving Israel with this unhappy distinction: It ranks among Western countries with the greatest proportion of poor children, according to the insurance institute. "Children who grow up in poverty are more than likely to live in poverty as adults," said John Gal, an economist at the Hebrew University. "They won't have the capacity, human capital and capabilities to be able to get out of poverty, to be mobile in society." Chana Eliyahu, 35, grew up in a family living in poverty, and now as an unemployed single mother of a two-year-old girl, she has become part of that cycle. She lives off of NIS 2,700 a month in welfare and child subsidy payments, and has trouble finding full-time work because she suffers from anxiety attacks. Eliyahu lives on the second floor of an apartment building in one of Tel Aviv's roughest neighborhoods, one populated by drug dealers and prostitutes. To reach her small apartment, one has to pass brothels and climb a staircase reeking of urine and rotting garbage. Her daughter, Hila, is her inspiration to find a better life, outside the walls of an apartment where she fights off rats and cockroaches and tries to ignore the peeling paint. "My dream for her is to live in a normal place," said Eliyahu after collecting a week's supply of dry goods and diapers from the relief group Food for the Disadvantaged. "She'll go to a school where there are no drugs or violence, and will go to extracurricular activities. We'll do her homework together. She's so smart." The rich get richer Meanwhile, about a mile away from Eliyahu's apartment, at the business conference, Prime Minister Ehud Olmert boasts that the economy is in top form. As evidence that at least one sector is thriving, consider that the number of Israeli millionaires per capita is twice the world average, according to the 2005 World Wealth Report. Some 7,400 Israelis are worth at least $1 million, the report said, including 84 who have at least $30m. The total liquid assets of Israel's upper echelon grew by 25%, to $30 billion, between 2004 and 2005, according to the report. Those designated by the report as the nine richest Israelis made their fortunes in everything from diamonds to real estate, from communications to entertainment. During his speech at the David Intercontinental, however, Olmert also acknowledged the roughly one-third of children living in poverty and announced $143m. in government funding for a new program to help children at risk. Although the general standard of living has risen in recent years, the lower socioeconomic classes have seen their situation plummet, largely due to massive cuts in government social spending that began in 2002. The budget cuts reflect an ideological and policy trend that is reordering the country's class structure, according to Uri Ram, a sociologist at Ben-Gurion University of the Negev, and the author of the upcoming book The Globalization of Israel: McWorld in Tel Aviv, Jihad in Jerusalem. Even the Labor Party, which typically is associated with generous social welfare spending, has gone back on its founding values, said Ram, to become a part "of this process of transforming Israel from a welfare society into this kind of free-market, corporate-dominated society." French immigrant Gilles Darmon saw immediate evidence of that socioeconomic transformation when he arrived in Israel in 1994, and it shocked him. "Zionist organizations like the Jewish Agency and the Foreign Ministry don't like people to start talking about poverty when they want to establish the appearance of a normal country, so I thought there was not much poverty," said Darmon, who works in finance. "But when I arrived I said, 'Wow, there is a problem.'" In 1996, Darmon established Latet, the country's first and largest food bank, which is headquartered in Tel Aviv. With the help of 114 local organizations, Latet collects and distributes 3,500 tons of free food a year to 30,000 to 40,000 impoverished families throughout the country. Demand for Latet's services has grown 300% in the past three years, which Darmon says is an ominous signal. "When you have such a jump in a Western society like Israel, it means something very major is happening in the society. Something has collapsed in the involvement of the state in social issues," he said. Netanyahu's plan Some say the economic disequilibrium can be traced to the neoconservative fiscal policies of the Likud Party acting at the behest of then-finance minister Binyamin Netanyahu, who believed the economy had become too bloated and bureaucratic to compete in the global market. Netanyahu's remedy: Cut spending, reduce dependence on government services and reduce inflation. While Netanyahu is no longer the finance minister, the same approach remains in place today. The resultant budget cuts that began in 2002 included the elimination of food subsidies, a decrease in child allowances, increasingly stringent eligibility standards for welfare, the elimination of many social programs for the elderly and a reduction in welfare benefits. The cuts shredded the social safety net, leaving many families unprepared for the misery that would follow, social policy activists say. But since the early 1990s, with the mass arrival of immigrants from the former Soviet Union and the growth of the hi-tech sector, Israel has seen itself become an increasingly capitalist society, a society where the economically strong survive and those in the middle and lower rungs have had some trouble adjusting. Among the hardest hit have been the elderly, single-parent households and large families, which in Israel usually means either Arabs or haredim. According to the National Insurance Institute, about two-thirds of families below the poverty line are either haredim or Arabs. Haredi women are the focus of a unique employment initiative in a West Bank community that has produced encouraging results there and elsewhere. Haredi men are being trained in professions ranging from computer programmers to bus drivers. As for Israeli Arabs, results and programming have been less dramatic. Many have participated in government welfare-to-work program pilots modeled on the American "Wisconsin Program." In contemporary Israel, minimum-wage salaries - about NIS 54,000 per year for a couple with two children - are insufficient to pull a family out of poverty. As a result, even many dual-income earners find themselves setting stark spending priorities for themselves and their families. They sometimes have to choose between buying food or medicine or paying the rent. Avraham Sobolson, 55, said he often struggled with the dilemma of buying food or medicine to treat his ailments - including physical problems such as diabetes and mental woes like schizophrenia - until Food for the Disadvantaged began delivering weekly packages to his one-room apartment in the Hadar Yosef neighborhood of Tel Aviv. The former professional weightlifter and wrestler with a round, thick face and bald head is now confined to a wheelchair because of a blood disease that affects his legs. Sobolson lives in a dark, dank ground-floor apartment with bare floors and little furniture - a bed, a couple of plastic chairs, a teetering narrow plywood wardrobe and a shelving unit stacked with medicine bottles and gauze. On the walls of peeling paint hang what he calls his certificates that speak of his past as an athlete and coach. A thick layer of grime clings to the walls and floor. Sobolson lives off of NIS 2,250 a month in disability payments and volunteers teaching tai chi from his wheelchair to groups of the mentally ill. He is fighting the National Insurance Institute for an allowance that would let him hire an assistant to help him bathe and clean his apartment. The money also would pay for taxis so he could more easily reach the class he teaches, which is outside of Tel Aviv. "The National Insurance Institute has no feelings about sick people," he said. "Do you know how many people there are like me out there?" Seniors, survivors feel sting The elderly have also disproportionately felt the sting of cuts in social spending. Unable to save for pensions, some senior citizens find themselves living off monthly checks of roughly NIS 1,700 from the National Insurance Institute. And as they age and become more frail and ill, their costs for medicine and nursing assistance rise while their incomes shrink. There is no mandatory pension law in Israel, although Finance Minister Avraham Hirchson again called for one as part of his economic reform plan announced in late January. Among the impoverished elderly are many Holocaust survivors. In fact, Noah Flug, who heads an umbrella group of Holocaust survivor organizations estimated that about one-quarter of Israel's 250,000 survivors live in poverty. "There is lots of focus in Israel on those killed in the Holocaust, but those who lived through it are forgotten," he said. The social welfare crisis was reflected in the 2006 national elections. Instead of national security taking center stage, social gaps were a dominant theme in the campaign. The Likud was roundly punished through what was seen in part as backlash against Netanyahu's economic policies - the party landed only 12 seats in the Knesset after earning 36 in the previous vote. Labor returned to its quasi-socialist roots, promising to deal with the growing gap between rich and poor. But a few months after the new government came to power with Labor as a partner, the war with Hizbullah broke out and the national focus again shifted to security issues. Ironically, though, the war highlighted the social chasm between haves and have-nots. Those who could afford to leave the North did so. The poor, however, were left behind to fend for themselves in bomb shelters. Without the government to provide sufficient help, private social welfare organizations have proliferated in recent years. Such groups were at the forefront of assisting those in the North during the Hizbullah war, delivering food, medicine and psychological care. Sari Revkin, who nine years ago founded the citizens-rights organization Yedid: The Association for Community Empowerment, said the needs of the underclass grow every month and the government "seems to sink back into silence." "We've been put in the position of doing what the government should be doing, knowing that if we turn people away they will retrench into themselves," she said. "Three thousand new people a month come [to us] for help." Meanwhile, R. of Holon awaits an uncertain future. "The cellphone company wants to take away my phone, the electricity company says they are going to cut me off," she said. "And there is no government budget to help us, my social worker tells me." She gets free food packages from the charity Ezer Mizion, which has seen the demand for food soar in the past year. Moshe Traube, the manager of the Holon-Bat Yam branch of the charity, said the stories of destitution and abandonment he hears constantly can be overwhelming. "Here the rich get richer and poor get poorer," he said. "Everyone has to struggle for him or herself alone."