How government policies have caused the surge in ultra-Orthodox Judaism in Israel—and why it’s an economic disaster.

The following is adapted from Gershom Gorenberg’s new book The Unmaking of Israel. Read yesterday’s excerpt about why, exactly, Israel ended up losing most of its Arab population in 1948.Tomorrow, Slate will publish a final excerpt about how Israel can resolve its tragic crisis with the Palestinians.

I'm standing in the Kerem Avraham neighborhood of Jerusalem. Across the street is the stone-faced building where Israeli novelist Amos Oz grew up in a small ground-floor apartment. Back then, in the 1940s, Kerem Avraham was home to "petty clerks, small retailers, bank tellers or cinema ticket sellers, schoolteachers or dispensers of private lessons," as Oz writes in his memoir, A Tale of Love and Darkness. They observed the last vestiges of Judaism—lighting Sabbath candles on Friday night, attending services on Yom Kippur—and avidly argued fine points of secular Zionist ideology.

While I stand on the street, a flock of teenage girls walks by, dressed in blue blouses buttoned to the neck, pleated skirts, and high socks, so that no skin besides their faces and hands shows. A family passes, the husband in a circular, flat-topped black hat, his wife pushing a stroller, three more children younger than age 6 walking with them. The mother wears a wig, the common method for haredi (ultra-Orthodox) married women to hide their hair in modesty. On a cross street, I pass a kollel—a yeshiva where married men receive small salaries to study full-time.

Kerem Avraham today is one neighborhood in the haredi belt of northern Jerusalem, a land of wall posters denouncing television, Internet, and rival religious factions; of life-long Torah study for men and countless pregnancies for women; of schools that provide scant preparation for earning a living and no preparation at all for participating in a democratic society. The neighborhood began changing in the 1950s, after the rebellious young Oz moved to a kibbutz, which he left many years later.

Less than a mile from Amos Oz's childhood home is an apartment development put up several years ago for better-off haredim. The nine-story buildings surround a courtyard with a playground that is crowded with children in late afternoon. Underneath the buildings is a three-level parking garage, with small storerooms along the sides of the half-lit concrete caverns. The storerooms, a standard feature of Israeli apartments, belong to the residents who live above. But some of the small rooms have doorbells, names on the doors, water meters, and high windows looking into the dark garage. I hear the voices of a couple inside one, and an infant crying. Outside another is a metal rack on which laundry is drying. They've been rented out as apartments to young haredi families who can afford nothing else.

The picture above ground is of a thriving community. Beneath the surface one can see one part of the price being paid by the haredim themselves, and by Israel as a whole, for the peculiar development of ultra-Orthodoxy in Israel.

Today's haredim are known for marrying early and having many children, even as men spend much or all of their adult lives studying Talmud rather than working. When the state was established, haredi society "was entirely different," says sociologist Menachem Friedman . "It was a normal working society," similar to the rest of the Jewish population. The fertility rate was about the same. So was the average marriage age, though sometimes haredi men married relatively late if they wanted to extend their religious studies. To get married, a man had to leave Talmudic studies in a yeshiva and find work.

Rather than being a diorama of traditional Jewish life in Eastern Europe before the Holocaust, as many Israelis and visitors believe, Israel's present-day version of ultra-Orthodoxy is a creation of the Jewish state. Policies with unexpected effects fostered this new form of Judaism, at once cloistered and militant. So did successful measures by haredi leaders to revive a community that was shrunken by modernity and then devastated by the Holocaust.

While a similar revival has taken place in haredi communities in the United States and other western countries since World War II, their dependence on government funding is necessarily more limited. In turn, the extent to which adult men can engage in full-time religious study rather than working is also more restricted.

In economic terms, the haredi revival in Israel has been disastrous. Israel's ultra-Orthodox community is ever more dependent on the state and, through it, on other people's labor. Exploiting political patronage, ultra-Orthodox clerics have largely taken over the state's religious bureaucracy, imposing extreme interpretations of Jewish law on other Jews. By exempting the ultra-Orthodox from basic general educational requirements, the democratic state fosters a burgeoning sector of society that neither understands nor values democracy. And to protect their own growing settlements, haredi parties are now essential partners in the pro-settlement coalitions of the right.