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Arabs, Jews work together on peace, profit

NAZARETH, ISRAEL - Busy in a tiny laboratory, Kamal Khawaled thinks he has figured out how to fight tooth decay: with a chemical gel and a small dose of electricity. He hopes to adapt the treatment to make teeth whiter.

That may be a breakthrough, but Khawaled is part of what may be an even bolder experiment unfolding here in Nazareth's industrial zone. Officials and activists are trying to recruit Arabs like him into the biotechnology and high-tech industries, in which they have been sorely underrepresented. Their goal is to better integrate Israel's Arab minority into the nation's economy and improve its relations with Jews.
 
The center of the 5-year-old effort, which relies on government loans and private investors to nurture fledgling technology enterprises, is a business incubator in this predominantly Arab city. Amid the clatter of nearby car repair and tire shops, Arab and Jewish entrepreneurs are working side by side, hoping to turn futuristic notions into successful businesses and, perhaps, make a little peace in the process.
 
The incubator, called New Generation Technologies, or NGT, is a proving ground for a dozen start-ups with such names as Callarity and CapsuTech.
 
One young company is working on a cancer treatment, another on equipment for taking photographs inside the body. There are efforts to come up with a better baby formula, create livestock feed supplements and develop technology to better track online calls, such as those made via Skype and Jajah. Most of the companies are headed by Arabs or managed jointly with Jewish partners. Three are run solely by Jews.

"Arab and Jewish [people] can live together - they can. They have to do it in several ways: to talk together, to work together, to eat together," said Khawaled, 41, whose nascent company, called Fluorinex, has a Jewish CEO. "If people think they can do it in high tech, we can do it anywhere."
 
By nudging more Arab citizens into Israel's soaring technology fields, the project's organizers hope to tackle long- standing inequalities that have left the country's 1.4 million Arabs lagging behind Jews in wages, employment, health and education. In this effort, they say, tech-savvy young Arabs could prove pivotal.

"Integrating them could help build trust between the two peoples," said Helmi Kittani, an Arab co-director of the nonprofit Center for Jewish-Arab Economic Development. The group, whose other director is Jewish, spearheaded the effort to persuade the Israeli government to set up a technology incubator that would focus on Arabs.

It is too early to tell whether the businesses cultivated in the NGT incubator will take root. Most of the entrepreneurs are still testing their ideas and raising capital to turn visions into marketable products. Only one firm, the maker of a diabetes treatment, has gone to market.

But NGT executives boast that none of the enterprises has dropped out – a survival rate that tops the average for the 22 other government-sponsored technology incubators throughout Israel.

More important, they say, it has drawn an enthusiastic response from Arab engineers and investors, who in the past gravitated to more traditional pursuits, such as construction and real estate.
 
Technology remains unplowed terrain for most Arabs, who make up a fifth of Israel's population but hold only 2% of its high-tech jobs, Kittani said. Arabs cite a variety of factors, including discrimination, for their under representation in the world of technology.
 
For one thing, many of Israel's tech enterprises are outgrowths of the nation's defense industry, from which Arabs say they are often in effect barred because of security concerns. Also, Arabs are exempt from the military and most don't serve in the army, although service is compulsory
 for Jews. As a result, Arabs say they miss the chance to form social ties that can lead to jobs or business opportunities later.
 
However, Arab entrepreneurs and investors say their own community's traditions are partly to blame for the relative absence of Arabs in technology and venture capital. Part of the goal of the Nazareth project is to alter the custom that often steers the most promising Arab students into
 family businesses or academic programs in more conventional fields, such as law, medicine and architecture.
 
"Twenty years ago, to be a doctor or architect was the dream of every mother, Jewish or Arab," Kittani said. Jews changed that equation by seizing opportunities in technology, he said, but Arabs were slower to catch on.
 
"Arabs have not made an effort," said Omar Massarwa, the owner of a seed company. Massarwa was among six Arab businessmen who plunked down $250,000 for founding stakes in NGT in 2002. "They haven't made a good effort to enter these companies."

The incubator, which operates on a yearly budget of $360,000, has channeled about $7 million of government loans into the young businesses.
 
Amjad Abu-Raya, a computer science graduate from the northern Israeli village of Sakhnin, got his break in high tech through his acquaintance with the Jewish owner of an Internet start-up whom he met in a supermarket eight years ago.
 
Abu-Raya, 26, later took a job at the businessman's company, and the men stayed friends. Now, they are partners in Callarity. The year-old firm is the only Internet-focused enterprise at NGT.
 
The partners are trying to round up $3 million to develop a system for identifying Internet calls and media transactions that could be of use to telecommunications companies and, perhaps, intelligence-gathering agencies.
 
Abu-Raya's partner, Eldad Caspi, 43, said he signed on to the venture mainly out of a desire to help his energetic friend. Caspi hopes the project helps bridge the Arab-Jewish divide but labels himself apolitical. "For me, it's business."

Caspi said the government's sponsorship of the incubator meant red tape and a tight rein on spending, squeezing the resources entrepreneurs need to develop a business plan and marketing program - crucial tools for building young companies. "It's not easy," he said.

New Generation Technologies got its start after Kittani and others lobbied the Trade Ministry in 1999 to establish a business incubator in a mostly Arab community. By the time it opened, the second Palestinian uprising was in full swing. The violence between Israel and Palestinians living in the West Bank and Gaza created bitter tensions between Jews and Israel's Arab minority.

Project backers noted that Israel's development of technology-centered incubators during the 1990s had helped recent immigrants from the former Soviet Union, many of whom brought with them backgrounds in science.
 
A branch of the Trade Ministry called the office of the chief scientist agreed to provide low-interest loans of just under $600,000 for approved projects. At the same time, Kittani rounded up Arab investors in Israel from industries such as construction, meat importing and industrial air conditioning - none from high tech.

"The fact is, almost all of them decided to invest not because of business reasons, but because it would strengthen and empower the Arab community and change the mentality toward modern industries," Kittani recalled. "It started as a community activity, not because of any business plan."

That has changed. The incubator project has attracted nearly a dozen Jewish American investors, who account for a majority of the shareholders. Even the original Arab investors say they now see the project more as a business venture than philanthropy, though they concede that it will probably be years before they make any money.

Still, the value of the original stakes has risen fourfold, NGT officials said, and they are considering offering shares in the incubator to the public.
 
"I know this kind of business will take a lot of time," said Massarwa, the seed-company owner. "We have a good position."

By Ken Ellingwood, L.A. Times Staff Writer