Fatina and Ahmad Zubeidat, young Arab citizens of Israel, met on the first day of class at the prestigious Bezalel arts and architecture academy in Jerusalem. Married last year, the couple rents an airy house here in the Galilee filled with stylish furniture and other modern grace notes.

But this is not where they wanted to live. They had hoped to be in Rakefet, a nearby town where 150 Jewish families live on state land close to the mall project Ahmad is building. After months of interviews and testing, the town's admission committee rejected the Arab couple on the grounds of "social incompatibility."

They petitioned Israel's high court to end such screening, claiming discrimination, a charge town officials are challenging.

"We can't just be good citizens," said Fatina, 27, who is expecting the couple's first child. "If they won't develop our villages, then we will choose where we want to live. The problem lies not with us, but with Jewish society that does not accept the other."

The Zubeidats are players in a wider ethnic clash unfolding in the Galilee, a northern region where Arabs, those who remained in Israel after its creation in 1948 and their descendants, outnumber Jews. Israel's policies have deepened the gulf between Arab and Jewish citizens in recent years, through concrete walls, laws that favor Jews, and political proposals that place the Arab minority outside national life.

This process of separation within Israel's original boundaries mirrors in many ways the broader one taking place between Israelis and Palestinians in the occupied territories.

With most of Israel's land controlled by a government agency, Israeli Arabs have long had more trouble acquiring property than Jews, who outnumber them five to one in a population of about 6.5 million people. In response, Arab lawmakers joined a Jewish parliamentary majority this year in endorsing the construction of a new Arab city in the Galilee, where demographic rivalry and ethnic separation are most pronounced. Arabs say it will be the first city built on their behalf since the state's founding.

But some Jewish political leaders have suggested that Israel's Arabs, who commonly refer to themselves as Palestinian citizens of Israel, should eventually live in a future Palestinian state, the subject of peace negotiations inaugurated last month in Annapolis, Md. Israel's foreign minister and lead negotiator, Tzipi Livni, said before the meeting that such a state would "be the national answer to the Palestinians" in the territories and those "who live in different refugee camps or in Israel."

Arabs and Jews study in separate schools in Israel -- the Arab system receives fewer resources -- and learn Israeli history in different ways. Israel's Jewish education minister, Yuli Tamir, ordered this year that Arab third-grade textbooks note that Arab citizens call Israel's 1948 War of Independence "the catastrophe." Many Jewish lawmakers reacted with scorn.

Except for a relatively small Druze population, Arabs are excluded also from military service mandatory for all but ultra-Orthodox Jews, an essential shared experience of Israeli life and a traditional training ground for future political leaders. Arab lawmakers have lined up now against a new proposal for Arabs to perform "national service" in lieu of time in the army, an institution they hold responsible for enforcing the Israeli occupation of the Palestinian territories.

"We have lost the Arab citizens of Israel," said Amir Sheleg, 63, who is head of security for the Jewish community of Nir Zevi on Israel's coastal plain. "They no longer want to be a part of the state, and I am sorry for it."

Sheleg, burly and bald, patrolled in a black pickup truck along a concrete wall that rises along the town's edge. The 15-foot-high barrier, funded by the government, divides the leafy streets of Nir Zevi from the adjacent Arab community of Lod. Rising crime, he said, prompted his town to begin building the wall four years ago.

"It only adds hatred," said Rifat Iliatim, 39, an Arab resident of Lod who sells horses for a living. "All our lives we lived together and there was respect on both sides. Do they want this part of Israel to be like Jerusalem or Gaza where Jews and Arabs are separate?"

ACRE

Acre is a city of 52,000 Arab and Jewish citizens, many living in mixed neighborhoods along a sweep of Mediterranean coast.

Arabs dominate the seaside Old City, a U.N. World Heritage Site of crenellated stone walls possessed over the centuries by Greeks, Egyptians and Crusader kings. A single crowded high school just outside the ancient walls serves the entire Arab population, 27 percent of Acre's total. The city's five mosques, including el-Jazzar, the second largest in Israel and the territories after al-Aqsa in Jerusalem, are also concentrated in the area.

Jews live in the newer, outlying neighborhoods that ring the Old City. For more than two decades, Jews rising into the middle class left the older neighborhoods and Arabs filled in behind them.

"This is a mixed city and that's a fact," said Ohad Segev, Acre's Jewish director general, who believes the two groups should mix as little as possible. "Just as I wouldn't allow a yeshiva to open in the Old City, I wouldn't allow a mosque to open in the new one."

In the past year, conflict between Arabs and Jews -- over business hours, the right to open mosques, and an increasing Jewish presence in Arab-majority areas -- has flashed through neighborhoods running between the two largely ethnically distinct parts of the city.

Yeshiva Hesder-Acco is dwarfed by decrepit apartment buildings with laundry hanging from balconies. Once populated by new Jewish immigrants, the apartments are filled now by Arabs. Young girls walk the streets in head scarves. Arab boys play soccer on the asphalt court next to the yeshiva.

"It's just background noise, part of the scenery," said Mordechai Behar, a 22-year-old yeshiva student, referring to his Arab neighbors. "We try not to interact with them."

Yossi Stern, a 35-year-old rabbi, runs the yeshiva with a bustling energy. He arrived in 2001 from the West Bank settlement of Elon Moreh, one of the earliest and most radical in the territories, where he was a teacher.

His move reflected a shift in his focus from settling the West Bank to promoting a larger and more politically aware Jewish majority within Israel's original boundaries. He has grown the yeshiva from 20 to 120 students since then.

"Inside the Green Line, people have not awakened to their role of the last 100 years," Stern said, referring to the 1949 armistice line that marked Israel's boundary until it seized the West Bank, the Gaza Strip and the Golan Heights in the 1967 Middle East war. "If we fall asleep here, we will wake up to an Arab majority."

His students volunteer in public schools and direct tours of the Old City, where a state-run development company is buying Arab property and selling it to Jewish businessmen.

Stern works with the city government, led by a Jewish mayor, on projects designed to attract Jews to Acre, including a recently approved housing development designated for Jewish military families. Built on state land, the development will include a new, 350-student yeshiva that Stern advertises as "the center for Jewish identity in the Galilee."

"We're not trying to build a settlement in this city," he said. "Here we're mature enough to see this as a long process."

But Ahmad Odeh, an Arab member of the city council, calls Stern precisely that -- "a settler" trying to make Arab neighborhoods more Jewish. Odeh's family fled from the Galilee village of Shaab during the 1948 war, eventually settling in a neighborhood not far from Stern's yeshiva. Odeh has sued the Jewish-majority council successfully six times for violating Arab rights to education and property.

Odeh, a slight, wiry man with spiky hair, has been lobbying the council to reopen a mosque outside the Old City that the government closed decades ago. It sits among some of the city's more than 50 synagogues.

Because the single Arab high school is overcrowded, Odeh's eldest daughter commutes to one in a village 45 minutes from town, reversing the rural-to-urban migration patterns of recent decades.

"This is all part of the project to Judaize the Galilee," said Odeh, 48. "We want to be partners in our city."

KARMIEL

This hilltop community with streets lined by date palms and split by lush grassy medians emerged in the 1960s as a Zionist response to the large Arab population in the Galilee. The Zubeidats are among a tiny fraction of Arabs who live here.

The couple considered building a home in Sakhnin, a nearby Arab town. But as with many Arab towns and villages, its public services pale next to those of Jewish ones. The prospects appeared better in Rakefet, and they applied to live there after marrying.

The Israel Land Administration controls 93 percent of the land in Israel, including the hilltop where Rakefet sits. The government agency has a say in who is allowed to live in such communities with a representative on the local "absorption committees" that weigh the applications.

For the Zubeidats, who speak Hebrew and Arabic fluently, the months-long process began in the summer of 2006. It included a series of interviews and tests, some taken with the dozen or so Jewish applicants also seeking to move in.

"All the questions had to do with how we would integrate into the community," Fatina said. "We have many, many Jewish friends. We spend our holidays with them, and they do the same. We're not from outer space, we're from here."

The rejection letter followed a conversation the Zubeidats had with an official from the Misgav Regional Council, which oversees Rakefet and dozens of other nearby towns. He told them, Fatina recalled, that although they were "very nice people," he would have to begin marketing Rakefet as a "mixed community" to possible buyers in Tel Aviv if they moved in. The designation would hurt sales.

"Obviously, this whole process was designed to push us back to Sakhnin," Ahmad said. "And the way these Arab towns are now, it's like a ghetto."

Maya Tsaban, a spokeswoman for the regional council that oversees Rakefet, said, "This decision was based on rules we didn't make," referring to regulations established by national government agencies. She declined to comment further.

The Israel Land Administration, which set the selection criteria, rejected the Zubeidats' appeal this year. An agency spokeswoman, Ortal Tzabar, said, "One aspect taken into consideration in deciding whether to accept someone is the homogeneity of the community."

The houses of Rakefet are set along steep, curving streets lined with pines and cedar. Nadav Garmi, a 35-year-old engineer, is building a home there. He makes a short drive each day from his neighboring community -- also populated only by Jews -- that falls under the same regional council.

"I'm very left-wing, but I think Arabs should live in one place, ultra-Orthodox Jews in one place, secular Jews in one place and so on," Garmi said. "If you want a good neighbor, you have to have a place for everybody. It's best not to mix too much."