"You what? Swapped the diamonds for a turboprop?" Martin Rapaport giggles uproariously into a speaker phone.

While he chats about one deal, he's half listening to another. At his elbow two men with long beards, curly earlocks, black hats and black coats haggle over small piles of gems, spilled out on a paper-strewn desk.

Rapaport hangs up the phone. His yarmulke hangs precariously from a bobby pin. His breakfast -- pretzels and soda pop -- is perched on a stack of computer printouts.

"Twenty-six," he offers one of the brokers, an old man, for a large marquise diamond, speaking in thousands of dollars.

The man, a member of the Hasidic sect of Orthodox Judaism, shakes his head. "I can get 31, greine oysgetseylt," he says -- Yiddish for "green counted out" or cash.

"Then sell it," says Rapaport with a grin, refusing to up the bid.

On a single grimy, glitzy block of midtown Manhattan -- a stretch of 47th Street between Fifth and Sixth avenues -- hundreds of gem merchants like Rapaport ply their trade. This is New York's Diamond District, a bazaar more redolent of the Middle Ages than the 20th century, a place of elaborate ritual where love and greed, trust and suspicion, religion and moneymaking come together.

" 'The Street' is its own world," says Rapaport, 33, a broker and publisher of the Rapaport Diamond Report, the industry's principal price sheet. "It's like traveling to a foreign country. It has its own language, its own culture."

Eighty percent of the diamonds sold in the United States -- nearly $2 billion worth a year -- pass through 47th Street, along with a substantial portion of the rubies, emeralds and other colored stones.

In street-level exchanges, hundreds of jewelers, packed side by side in tiny booths, sell gems and precious metals. Neon signs flash "Diamonds." A message on the window of Glasser-Becker-Runsdorf jewelers announces, tongue in cheek, "Estates Poichased."

In drab office buildings above the stores, diamond cutters, polishers, dealers, brokers and importers -- many of them Orthodox Jews who fled Nazism and then communism -- hustle and haggle in cramped quarters behind triple doors, closed-circuit television and private guards.

Jewish domination of the industry dates to medieval times; Jews took to dealing in diamonds because they were largely forbidden to own land and practice regular trades. The gems were easily portable in times of persecution. Today, however, aggressive young merchants from Hong Kong, South Africa, India, Japan and Iran -- including Jews fleeing the Ayatollah Ruhollah Khomeini -- jet in and out with ease.

Forty-Seventh Street is a world both ancient and strangely up-to-date. In the afternoon, black-garbed Hasidim pile into highway buses to journey home, men and women separated by a long curtain. On the Street, a man's word is as sacred as the Talmud, and deals are rarely put into writing. Hundreds of thousands of dollars in gems trade hands on a handshake, sealed with the traditional words, "Mazel und brucha" -- Hebrew for "luck and blessings."

But when diamond fever hit in the late 1970s and prices soared, many brokers rushed to cash in on the go-go investment market. Some of the bearded traditionalists now record their deals on portable Radio Shack computers.

While the Street in many ways has the atmosphere of a village where everyone knows everyone else, several highly publicized murders of diamond merchants here have created an atmosphere of obsessive security. "This is a very hot block," said patrolman Anthony Page, standing in front of Pinkowitz's Kosher Pizza parlor. "We keep our backs against the wall."

In the daily frenzy of the Street, where dealing halts only for mincha, the obligatory afternoon prayers of the Orthodox faithful, Martin Rapaport leads a charmed life. By some accounts, he should be dead. But this son of two Auschwitz survivors chuckles irrepressibly when he plays his tape recordings of telephone threats.

"It would be a mitzvah to kill you . . ." says the thickly accented voice on the line, using the Hebrew word for "good deed."

Rapaport's voice shoots back, "You and your rabbis are full of it!"

The dispute dates to 1978 when Rapaport began publishing a weekly report listing "consensus" prices that diamonds were fetching on the Street in that booming market. In 1980, prices started to drop and his list reflected the downturn. Dealers became infuriated, claiming that the list in effect set a ceiling on prices.

Rapaport was called before the court of the Union of Orthodox Rabbis and ordered to halt publication. Some weeks, he says, he got as many as 40 bomb threats and menacing phone calls. Police traced several to a matzo bakery in Brooklyn.

"I became the scapegoat," says Rapaport.

In 1982, Rapaport was thrown out of the Street's Diamond Dealers Club, the 1,800-member trading center for the industry and the largest of the world's 19 diamond bourses. He filed a $55 million damage suit against the club and was reinstated in March 1983. The lawsuit is still pending.

Several wealthy dealers hired Washington lawyer (and former arms control negotiator) Paul C. Warnke to lobby the Federal Trade Commission to investigate Rapaport for antitrust violations and price manipulations. Instead, the FTC wound up investigating the club for restraint of trade -- in particular obstructing the collection and dissemination of price information.

"Rapaport is brash, arrogant . . . a know-nothing," says Robert Mandelkern, a prominent dealer. Mandelkern and other industry spokesmen maintain that no two diamonds are alike, and thus any price list is inaccurate.

At a recent club meeting, Rapaport says, still chuckling, several merchants "physically chased me around the club and called me Hitler."

In the lobby of the Diamond Dealers Club, the newsstand sells Hebrew-language papers and does a brisk sideline in imported dates and "Torah air-freshener." Behind the bulletproof glass of the club's gymnasium-like quarters, rows of buyers and sellers haggle back and forth across long billiard-green tables.

A black-hatted broker carefully unfolds a small packet of stones in white paper. The customer, a Japanese businessman with a tiny calculator at hand, picks up a stone with tweezers, holding it up to the northern light which streams through six-foot windows. Colorless diamonds are the most valuable. He peers into the gem through a loupe, checking for clarity and flaws.

"There are shleppers, the guys who drag, take their time before they buy," Mandelkern explains. "And there are shpringers, who jump to a deal. And, of course there are the shvitzers, the palpitators." (Or literally "one who has overactive sweat glands.")

The racket of 46 loudspeakers paging brokers to a row of phones adds to a sense of bedlam. Lines form at booths where diamonds are officially weighed. Nearby, a group of men play backgammon and cards. White-bearded Hasidim and slick young men in pin stripes sit at the kosher lunch counter wolfing down gefilte fish and baked ziti.

In a corner room, two candles are lit and a half-dozen men pace the linoleum floor, reading aloud passages from Hebrew prayer books.

The bulletin board features the names and snapshots of new members, as well as candidates for the board of directors: Auerbach, Ribacoff, Freedman, Mehta, Khafi, Franco, Cohen, Greenfeld, Berg.

Even traders from Japan, China, South Africa and Europe have learned to use the magic words, mazel und brucha. If a dealer reneges on an agreement once the words are spoken, he is hauled before the club's board of arbitrators. Anybody who fails to abide by their decision is banned from the club, and, in all likelihood, from other bourses too.

Once extracted from the mine, a diamond can exchange hands as many as eight or 10 times before it becomes a piece of jewelry. Markup is "whatever your nose tells you," Rapaport says, adding mischievously, "Only WASPs pay full price."

The diamond trade is still a business handed down from father to son, from brother to cousin. "It is an industry built on trust," says Richard Steinmetz, 56, a cutter who came here from Hungary. In his brothers' 20-man shop, Steinmetz is grinding the facets on a 25-carat heart-shaped diamond. Later, he will pass it to his son, a "girdler," who shapes the middle of the gem.

"I have here a stone worth three-quarters of a million dollars," Steinmetz says. "I could get up and walk away with it. So every single person in this place has to be 100 percent reliable. If I take in my son, I know he's reliable. No stranger can come in. I have to know someone's father and their grandfather."

Cutters like Steinmetz are the blue-collar workers of the industry. But the work is highly skilled and paid by the piece, so top cutters can earn up to $100,000 a year.

Two Puerto Ricans work in the shop, but most of Steinmetz's benchmates are Orthodox Jews. They don't shake hands with women, because their beliefs hold that no women but their wives should be touched. After lunch each day, they break for 15 minutes of prayers.

The men, dressed in blue uniforms, work at whirring cast-iron wheels impregnated with diamond dust. "We put the sparkle in the stones," said cutter Bernie Olger, admiring Steinmetz's gem. "You'd be surprised how many sheiks and gurus wear that sort of thing."

On the Street, no one wants to talk about crime -- to strangers at any rate. "We're trying to get rid of this image of Ali Baba and the Forty Thieves," said Manny Cohen, a prominent merchant, shuddering at the mention of murder.

In 1977, the body of Pinchos Jaraslowicz, a 25-year-old broker known as P.J., was found stuffed in an air-conditioning duct under the workbench of Schlomo Tal, an Israeli diamond cutter. At first no one on the Street would talk to the police. Finally the glare of publicity grew so hot that business suffered. After an intense investigation, Tal and another Israeli cutter were convicted of the murder, and of stealing $600,000 worth of diamonds that Jaraslowicz was carrying.

Last June, Irwin Margolies, owner of the Candor Diamond Co., was convicted of murder for hiring an assassin to kill two of his employes who had cooperated with a federal fraud investigation. Three CBS workers were gunned down when they came to the rescue of one of the victims.

Police estimate that tens of millions of dollars in stolen jewelry is fenced every year on 47th Street. The thieves can be bold, double-parking their cars in broad daylight and hauling the goods into shops in brown paper bags.

On a recent afternoon, a tall youth in a ski cap and running shoes stood in the doorway of a smelting shop and called softly into the throng of passers-by, "Got any gold?" A mailman made his rounds -- accompanied by three armed U.S. Postal Service guards.

And Rapaport, hurrying, hurrying, tore out of his office to catch a plane to Israel, where he owns a computer business. He paused, only for a minute, with a question for a visitor from the outside world. More diamond jewelry is being sold in the United States than ever before, but still, Rapaport is worried: "Will yuppies buy diamonds?"