Israeli prime minister Benjamin Netanyahu said this morning "corrections" in social-welfare policy must be taken "with sensitivity, but responsibly," and it is not possible to meet every demand being made.
His comments to the Cabinet in Jerusalem today were broadcast on Israel's Army Radio and follow a protest march by an estimated quarter-million Israelis last night seeking lower living costs.
The march was the latest escalation in a campaign by demonstrators which started at a cluster of student tent-squatters and has grown into a diffuse, countrywide mobilisation of Israel's middle class.
Israel projects growth of 4.8 per cent this year at a time of economic stagnation in many Western countries, and has relatively low unemployment of 5.7 per cent.
But business cartels and wage disparities have kept many citizens from feeling the benefit.
"The People Demand Social Justice" read one of the banners carried by marchers, which mostly eschewed partisan anti-government messages while confronting Mr Netanyahu's free-market doctrines.
Police said at least 250,000 people took part in last night’s march in Tel Aviv, Jerusalem and other cities, a greater turnout than at marches on the two previous weekends.
Demonstrations on such a scale in Israel - population 7.7 million - have usually been over issues of war and peace.
In a "Peace Index" poll conducted by two Israeli academics, around half of respondents said wage disparities - among the widest of OECD countries - should be the government's priority, while 18 per cent cited the dearth of affordable housing.
Some 31 per cent cited the stalled Middle East peace talks, Israel's international image, or the need to bolster the armed forces.
The demonstrations have upstaged Mr Netanyahu's standoff with the Palestinians ahead of their bid to lobby for UN recognition of statehood next month.
Protests also deflated his celebration of Israel's stability as citizen revolts rock surrounding Arab states across the Middle East and North Africa.
"There has been nothing like this for decades - all these people coming together, taking to the streets, demanding change. It's a revolution," said Baroch Oren, a 33-year-old protest leader.
The conservative coalition government has vowed to free up more state-owned land for development, build more low-rent housing and improve public transport. It also wants to lower dairy prices with more imports and boost medical staff numbers to address demands by striking doctors.
But the demands submitted by the National Union of Israeli Students go much further in calling for an expansion of free education and bigger government housing budgets.
Communications minister Moshe Kahlon, named by a Mr Netanyahu spokesman as a likely member of the cabinet troubleshooting team, said a solution was required even if it "cost billions" at a time when Israel is watching the debt jitters of the United States and parts of Europe.
Israel's debt burden is 75 per cent of GDP, lower than that of most major Western economies.
Reuters/Bloomberg