Kfar Shalem is a slum straddling the southern approach to Tel Aviv. At 6 one recent morning, about 1,000 men, women and toddlers, evidently organized, block the highway with a barrage of burning tires. At precisely the same moment, two other highways are blocked by the residents of neighboring slums.

Israel's first city is cut off for over three hours from half of the country as police battle the slum dwellers, who shout, "We want better housing," and warn, "Begin, we brought you to power, we shall bring you down."

The demonstrators are almost exclusively Sephardis, or Oriental Jews.

At Rabbin Kook Institute in Jerusalem, a religious seminar is in progress. Chief Rabbi Ovadiah Yossef expounds on the question of the halakha (Jewish law) and the occupied territories. "The Talmud," he tells the hundreds of rabbis and scholars, "lays down three instances in which it is permitted to take man's life: idolatry, incest and murder. Who are we to add a fourth instance by asserting that in order to keep certain parts of the land it is permissible to shed blood? After consulting all the members of the rabbinical high court, I assert that not only is it not forbidden to give back the territories in Judea and Samaria, but it is prositively a mitzvah [good deed] to do so to avoid bloodshed."

Later he said in an interview: "Of course we must talk with the Palestinians." Ovadiah Yossef is chief rabbi of the Sephardis.

Bnei Elazar is a Jewish settlement on the road to Hebron in the West Bank. On Nov. 12, two busloads of slogan-waving demonstrators overran the place, taking over the houses and hoisting black flags. "God," one of the settlers was to say later, "how they hated us. I can't believe they are Jewish."

Two armed guards opened fire from their army-supplied automatic rifles, shooting over the heads of the invaders. One of them, aiming apparently too low, was clubbed down and beaten into unconsciousness. Finally, army and police dragged the invaders, one by one, into custody. They had been chating: "Build homes for us, not in the occupied territories." And, "Begin, you're stealing our children's bread to pay for crazy adventures." They identified themselves as members of the Israeli Black Panthers, a virulent protest movement of Sephardis.

Last month, Israel's new finance minister, Yigael Horowitz, introduced his austerity program. Prices of milk, bread, staples rocketed overnight by as much as 120 percent. Before the day was out, street fighting broke out in half a dozen spots in Jerusalem.

Thousands of slum and working-class district dwellers took to the streets, stoning cars, upsetting and burning police cars, wounding police officers. They were all Sephardis and the recurrent theme was: "Fight poverty, don't waste the money on settlements in the occupied territories." A spokesman for the demonstrators declared: "Begin has always been our leader. We looked to him for a fair deal. We're disappointed."

For years the masses of exploited, badly housed, badly schooled Oriental Jews had shouted: "Begin to power." It is their steady support, born of their hatred for the Labor governments they held responsible for their misery, which finally brought Menachem Begin to power, in May 1977. They were willing to give him more than a fair chance to prove that he was "their" Begin, and he basked in their adulation. But he forgot that credit in the slums is a short-term thing.

In those 2 1/4 years, Begin did not change. It is rather the Sephardis who are changing. The metramorphosis is most noteworthy in their attitude to the Arabs and to the peace process. For years, it was a basic assumption of Sraeli life tha the Sephardis nurse a blind hate for each and every Arab. It was taken for granted that they are the most rabid annexationists, the most chauvinist of Israelis.

Whenever Palestinians set off a bomb in a Jewish neighborhood, Sephardis were shown wreaking vengeance on the first hapless Arab they met. Their support for Begin was not presented as a desperate cry to the anti-government opposition, but rather as an identification with Begin's extreme anti-Arab stand.

Indeed, Arabs and Jews competed with each other for the crumbs of economic achievement and social respectability at the bottom of the national ladder, but that had nothing to do with Begin's brand of nationalism. n

The proff was made evident when Egypt's President Anwar Sadat came to Jerusalem. The throngs that lined the streets of Israel's capital, the housewives who distributed sweets to passersby, the white-bearded patriarchs who danced with blue-jeaned boys and waved Sadat's pictures were mostly Sephardis. They left no doubt of their desire for peace with the Arabs.

Attorney Shlomo Koehn-sidon's case is typical. A former member of the Knesset for the Likud, definitely on the hawkish side. Egyptian-born Koehn-Sidon set up an Israeli-Egyptian friendship committee. "When Sadat and the Egyptian people leave no doubt of their desire for peace," he says, "military occupation and settlements don't make sense any more. Should Yasser Arafat talk like Sadat and come to Jerusalem in peace, I would accept the withdrawal from the West Bank and the creation of a Palestinian state."

Of all Sephardis, the Moroccan Jews were reputed to be the biggest Arab-haters. One of them, Mordechai Soussan, an intellectual born in Fez, Says: "For years we were told: 'You're just Arabs.' It was the supreme insult that made us develop a feeling of inferiority towards the Ashkenazis [European-born Jews]. Sadat's visit, and signing the peace treaty with Egypt, has changed things. 'Arab' is no longer an insult, and just as we took the term 'black' as an identification because the Ashkenazis called us schwartz, so today we take 'Arab Jew' as an identification to be proud of. And it's true not only for the Sephardi community as a whole, but for each of its components. The Moroccans are, if anything, even more enthusiastic than Jews from other Arab countries, because their collective oppression within Israeli society is more obvious."

A young garage hand from Kiryat Gat, rejoicing in the prospect of a visit to Cairo, told me: "We know the Arabs well and we'll be able to live with them better than with the people we live with at present."

The phrase "we'll be able to live with them better than with the people we live with" gives the shivers to many an Israeli. Because, 31 years after the creation of the state of Israel, the Jews living in it are far from being an integrated people.

Six out of 10 Israeli Jews are of Oriental origin, and you only have to stroll through the Hatikva quarter of Tel Aviv, or in any Sephardic concentration in the country, to realize how strong the links are that bind those Jews to Arab culture and mores. Restaurants serve only Oriental dishes. Gefilte fish, those sweet-and-sour fishballs that delight Ashkenazis, are considered an aberration. Hawkers sing the virtues of their fruit and vegetables in a mixture of Arabic and Hebrew, though most of them were born in Israel. The music that pours out of the cafes is often that of Um Kulthum, the Egyptian singing star.

I remember a conversation I had in Cairo with the editor-in-chief of Israel's most popular tabloid. He was commenting on the ease with which Sephardic journalists got along with Egyptians. "What will happen to Israeli society," he asked, "when peace really sets in and the majority of our population will feel closer to the Arabs than to us?" And he concluded: "Maybe it's too early to make peace . . ."

Nobody goes hungry in Israel, but more and more families are wondering how they are going to meet the grocer's bill. Six months ago, according to official statistics, the average family in Israel spend 48.6 percent of its income on food alone. Poorer families spent much more and the percentage climbs ever higher as "nonessentials" such as books and vacations and new clothes get less and less of the family budget.

Larger parts of the working population will be nudged below the poverty line, bringing to an estimated million, in a population of 3.5 million, those eligible for welfare grants.

Overcrowded housing, inadequate wages, indifferent schooling breed delinquency, drug addiction, illiteracy and despair. Speaking to the press recently, Tel Aviv's police chief, Moshe Tiomkin, stressed the gravity of the situation: "In just one of those neighborhoods, we have 2,000 youngsters between the ages of 10 and 18 with a criminal record."

It is widely accepted that Israel's capacity to survive should be measured by one yardstick: her military might. But slowly the realization is taking hold that a sick society cannot create anything healthy, not even a healthy army. And the "social gap" that separates the haves (mainly Ashkenazis) and the have-nots (almost exclusively Sephardis) is Israel's gravest disease.

More and more of the country's youth are declared unfit for military service. The proportion of women exempted from military service, incidentally, is higher than that of men. It reaches 25 percent of women aged 18. One out of every four mothers of Israel's next generation is not capable of filling such jobs as phone operator, clerk or parachute folder.

Whoever is not drafted by the army because of what should really be considered as social deficiencies (a criminal record, mental maladjustment, drug addiction, illiteracy) is issued a special military card, testifying that he has been exempted in accordance with Paragraph 24 of the military service ordinance. He can never get a driver's license, and the better-paying government jobs are out, especially those that require security clearance.

In perpetually mobilized Israel, bearing such a card is a social stigma. But in the poolrooms and jukebox dens of Tel Aviv's "black belt," or on corner hangouts in far-flung development towns, there is more than a touch of insolent bravado in the answer: "Military service? Sure I belong to Commando 24."

It's a dangerous unit that keeps expanding as new age groups flock to it. "Am I crazy to serve in their army?" says Nissim, an 18-year-old from Pardess Katz, in the "black belt." "When I was called for medical examination, I stuffed myself full of drugs. I acted psycho. It's only dumb bastards who throw away three years of their lives." Pardess Katz, some 5 miles east of Tel Aviv, has a particularly high percentage of dropouts of military service -- well over 50 percent.

Nissim and his comrades of "Commando 24" are the main reason why tough green-bereted border-guard units were called on to police the "black" slums in Israel's cities. They were also conspicuous in the latest price riots, as they have been in all the outbursts of social violence, spearheading the frustration of their communities.

Up to May 1977, they vented their rage on the Labor government. Now, their patience wearing out, they turn on Begin, their erstwhile idol. Coupled to their ever-growing departure from the Arab-hating sterotype, the combination could be deadly to Begin's political future.