Far more unites Israel’s Jews and Arabs than pulls them apart. Vast majorities of each community recognize the other’s fundamental right to live in Israel. An Arab can go to any Jewish physician and be certain of the best possible medical care. A Jew can go before any Arab judge and be certain of a fair hearing. All Israelis yearn for peace.Nevertheless, not all is as it should be. The controversial proposal to anchor Israel’s Jewish identity in a new basic law – along with disturbing events in Abu Snan, Ashkelon, Kafr Kana and Taibe – should remind all Israelis that there are wide gaps that separate their country’s Jewish majority and Arab minority. These gaps create a dangerous vacuum of the sort that tends to be filled by religious and political extremism, and those, in turn, easily constitute the greatest threat to Israel’s survival and the welfare of its citizens.What exactly, has caused the estrangement between Israel’s Jewish and Arab communities? Succinctly put, it is a fundamental disagreement regarding the very nature of the state in which they both live.Israel’s Jews, including most of those who reject the proposed new basic law, believe they have a right to express their communal identity through national independence. Indeed, that right has long been recognized by the international community.Israel’s Arabs, including most of those who serve in the IDF or work for Israel’s government, believe that they have a right to live in a state that doesn’t subordinate their communal identity to that of their Jewish neighbors.It is easy to see why each community has adopted its particular position. If history teaches us one thing, it is that where you stand is ultimately determined by where you sit.As such, any attempt to debate these ideas on their merits or come up with a compromise or a synthesis is futile. These divergent visions of what Israel should be are deeply embedded in the historical narratives of its people, and they are and will always be completely irreconcilable.That does not imply that nothing can be done to make life better. Israelis may not be able to resolve the clash of its people’s competing visions, but there are ways to mitigate the harm that these discordant national paradigms impose on the country’s citizens.What we propose to do is to systematically reduce the role that state institutions play in the lives of all Israeli citizens. Our reasoning is remarkably simple – the smaller the state, the less salient the nature of that state.Consider, for example, what would happen if the only remaining role played by the State of Israel was to collect the garbage. It is doubtful that any Israeli would feel strongly one way or another about whether the waste disposal service was being provided by a Jewish or a secular binational state. The dispute between Arab and Jew over Israel’s national identity would not have been resolved, but only imbeciles would be interested in arguing about it.The problem is that the State of Israel does a lot more than pick up garbage. Not only does Israel have a powerful military that it needs and a highly developed social welfare apparatus that it should be proud of, but the state is deeply entwined in the economy through state-owned enterprises and corporate welfare programs, while it influences culture through its media outlets and its control of the funding spigot for religious institutions.In some spheres of Israeli life, such as health and education, Israel’s explicitly Jewish nature engenders few if any problems for any of its citizens. In other spheres, however, the state’s official status as the embodiment of Jewish national aspirations has resulted in very significant discrimination, usually – but surprisingly not always – directed at the Arab community.The government generously funds Orthodox Jewish religious institutions, but ignores the provision of religious services to Christians, Muslims and liberal streams of Judaism. Jews, for the most part, are forbidden to work on the Jewish Sabbath. It is almost impossible for Arabs to find employment in state corporations. Jewish boys are conscripted for a difficult three years of military service with almost no financial compensation, while most Arab boys are exempt. And so on.There are many straightforward measures that could be taken to reduce Israeli state involvement in the lives of its citizens. State-owned enterprises such as Israel Aerospace Industries and the Electric Corporation can be privatized. Corporate giveaways to the well connected, such as the Law for the Encouragement of Capital Investment, can be eliminated. The government can stop funding religious institutions and simply let congregations finance their own mosques, churches and synagogues, something that clearly works well in the United States.Such measures, however, can only go so far. The two most divisive issues facing Israel’s Arabs and Jews are land management and military service.Unfortunately, neither can be dealt addressed by simply reducing state involvement.Israel’s land management institutions trace their heritage to the Zionist movement’s settlement program. Before independence, this program’s mission was to establish Jewish control over as much land as possible, based on what later proved to be the correct understanding that only Jewish “facts on the ground” could secure viable borders for Israel.Following independence, this mission became irrelevant, but Israel’s new land management institutions continued to mindlessly pursue their predecessors’ old mission, seeking to establish a Jewish presence in every corner of the new state while trying to prevent Arabs from getting access to more land. As a result, Israel’s Arab community has been systematically denied access to the physical space required for its social and economic development.As for military service, there has always been a wide social consensus in Israel that it is unfair to place its Arab youth in a position where they may be forced to fight their own relatives, and hence, Arabs have been excused from conscription since 1948. As a result, with the exception of a few volunteers, Arabs have also been excluded from the most important identity-shaping experience in Israeli life, greatly reinforcing the sense among Jews that Arab Israelis aren’t really committed to their country’s survival and the safety of its citizens.Addressing the problems of military service and land management is not a simple matter of canceling a budget appropriation or conducting a flotation of the Tel Aviv Stock Exchange. Military service cannot be privatized, and efforts to privatize Israel’s land sector have been an utter failure due to a thicket of legal, regulatory and institutional obstacles. Some creativity is going to be required.One modest but interesting idea could be to raise Arab military units that combine army service with the creation of new Arab communities.Such units would logically be part of the one-time Nahal framework that combined army service with settlement.Arab Nahal units could fulfill quite a few worthwhile missions – such as mine removal or search and rescue – and could even be assigned to represent Israel in international peacekeeping assignments.The US could encourage such an initiative by earmarking a small sliver of the military assistance given Israel to provide financial support for the raising, training and deployment of such units.The author is an associate professor of economics at the Defense Resources Management Institute of the Naval Postgraduate School.Muamar Haj Yehia, is a Ph.D. candidate in Ag Economics at Hebrew University’s Faculty of Agriculture in Rehovot, and works at the Ministry of Agriculture.