Arie Gurel, who has been the mayor since 1978, calls Haifa "the city that produces." The description is meant to distinguish this sprawling, industrial city by the sea from Tel Aviv, Israel's commercial and financial center, and Jerusalem, the seat of the country's large government bureaucracy.

"We are the one that does not spend, the one that produces," Gurel said. "So when there is unemployment, we are the first to suffer."

Haifa is suffering now, not severely, but enough to cause concern. The unemployment rate of 5.5 percent is close to the national average but more than twice the rate of joblessness in Israel's two other major metropolitan centers.

Throughout Israel, unemployment is a subject of growing public apprehension. In a published interview earlier this month marking the first 100 days of the national unity government here, Prime Minister Shimon Peres said:

"We must not reach the point where unemployment spreads on its own momentum. We must have this danger in view and adopt measures to prevent it. I'm not resigned to there being unemployment."

Peres, however, offered no prescriptions on how Israel is to avoid higher levels of unemployment as it attempts to stem triple-digit inflation and reverse a steep economic decline. It is an explosive subject that is at the heart of the national debate over how much austerity Israel can tolerate in the course of slashing the government budget and shifting many workers from service and government jobs to productive industries that are geared to the export market. The disclosure last week of a letter to Peres from Secretary of State George P. Shultz, calling for more stringent austerity measures as a condition for increased U.S. aid, was a sharp reminder to the government and the public that Israel has made little progress toward restructuring its economy. The kind of measures Shultz is known to have in mind -- for example, much deeper government budget cuts that would mean the loss of government jobs -- would inevitably cause higher unemployment, increasing social and political strains.

Bank of Israel officials have predicted that the unemployment rate could double, to 10 or 12 percent, in 1985. Finance Minister Yitzhak Modai replied that such a level was "politically unacceptable" in Israel. Fear of growing unemployment has been a major reason that the government has been slow to implement its announced budget cuts or take other drastic measures advocated by economists.

At about 5 to 6 percent, Israel's unemployment rate is less than that of the United States and many European countries. But Israel, for political and social reasons, always has had an exceptionally low tolerance for joblessness.

Unemployment runs directly counter to the principles and promise of Zionism. If there are no jobs, it is harder to attract more Jews to Israel.

"Don't forget that the fundamental reason for our being here is to attract new immigrants, for other Jews to come here," Gurel said in a recent interview. "But even the idealists will not come if there is no work."

There are still vivid memories among Israelis of the two years before the 1967 war, when unemployment in the country reached 10 percent. Immigration, which is vital to Israel's identity as the Jewish state, dried up and thousands of people were leaving the country. It was then that someone put up a sign in the departure lounge at Ben Gurion International Airport: "Will the last one to leave please turn out the lights."

Moreover, a sharp rise in joblessness would invariably add to the already considerable strains within Israeli society. After the 1967 war, thousands of jobs, most of them unskilled and low paying, have been filled by Arabs from the occupied West Bank and Gaza Strip.

In economic good times, Israelis shunned these jobs, but this may be changing. Recently, 2,000 construction workers demonstrated outside Peres' office to demand that the government halt nonunion Arab laborers from undercutting union workers in the job market.

"Unemployment in Israel, even at a low rate, can cause social damage that you can't even imagine," said Baruch Haklai, the director of the government employment service.

Shultz and others have called for Israel to make basic structural changes in its economy. There is widespread agreement on one of the most basic, underlying problems plaguing the economy, and what must be done to correct it. Israel has too many people employed in government and other service jobs, too few in producing products for sale, especially for export.

According to Haklai, 400,000 of Israel's 1.1 million salaried, civilian workers are public employes. Even today, 40 percent of the jobseekers who come to the employment service want government jobs, although the government is no longer hiring, he said.

"This is one of our problems, the occupational structure of Israel," Haklai said. "There are too many public employes."

But there are jobs available, up to 3,000 a month offered by the employment service, that can't be filled. Here, Haklai said, the country runs into another problem, which he calls "the polarization of employment" in Israel.

"There are jobs, and people who don't like these jobs," he said. "You have overqualification by people, which creates expectations that can't be met. Two-thirds of the jobs we can offer are nonskilled, with low wages, night work."

The unemployed in Israel do not risk losing their benefits if they turn down what is considered an unacceptable job. They cannot, for example, be forced to work more than 25 miles from their home, or to accept a job that does not match their educational and professional qualifications. According to Haklai, a law that places restrictions on night work in industries has retarded attempts to exploit the capacity of those firms that are prospering by instituting double shifts, day and night.

The slow but steady growth of unemployment as the Israeli economy has deteriorated is illustrated by figures from the local employment service office in Haifa. Last month, said Yehuda Shoshani, the director, 3,251 people who qualified for unemployment benefits sought jobs through the office, compared with 2,210 in November 1983. But Shoshani had only 863 jobs to offer.

At the same time, however, the Haifa office hired 3,000 West Bank Arabs for jobs that could not be filled with Jewish job seekers. They are part of a commuting Arab workforce of about 65,000 from the West Bank and Gaza Strip that is hired and paid through the employment service. An estimated 10,000 to 15,000 other West Bank and Gaza Arabs hold jobs illegally in Israel, outside the official channel provided by the employment service, usually at salaries lower than those mandated by government and union agreements.

Accustomed to a constantly rising standard of living, many Israelis have refused to accept the often menial tasks performed by the Arabs, although Shoshani said he detects a gradual change in attitude.

"They think it is like it used to be in the good times," he said. "We used to give them a choice of jobs. But now they see there are not any other jobs available."

Shoshani and other officials said that unemployment has struck hardest at young people as they complete their military service. Many had expected to get jobs in the government, as their friends had, and have been frustrated by the government's hiring freeze that is part of the austerity program.

The situation is worst in some of Israel's so-called "development towns," communities of relatively recent immigrants that are often located in remote areas of the country. In some of these places, the unemployment rate already exceeds 10 percent.

In Haifa, where almost 17 percent of all officially jobless Israelis live, rising unemployment has not yet spawned serious social problems, Gurel said. "We are very much aware that this might happen," he added.

To the mayor, Haifa represents both the past and, he hopes, the future of the Israeli economy. Built around thriving Haifa Port, the city is Israel's manufacturing heartland, home to a number of major industries that were the foundation of the Israeli economy.

But no new industrial factories have opened in Haifa in the last three years, and many of the established firms are suffering from years of deterioration. The decline of the Israeli economy is symbolized by the Ata textile firm that is headquartered here.

Once Israel had a booming textile industry, but today Ata, the largest textile concern in the country, is on the verge of bankruptcy. As the U.S. government did in the case of Chrysler, the Israeli government is now attempting to devise a rescue plan to save Ata's 3,000 jobs, half of them in the Haifa area