Dec. 4 (Bloomberg) -- When bullets started flying on an Israeli beach just south of Tel Aviv on the evening of July 28, Alexander Lautin initially thought it was a terrorist attack.

It wasn’t. It was what police called a gangland shooting, and Lautin, a 34-year-old immigrant, was caught in the cross fire along with his wife, Margarita, and their two young children. Margarita, 31, was killed.

“It’s time the authorities start dealing with the gangsters in the same way they fight the terrorists,” said Lautin in an interview four months after his wife’s death.

Increased street violence between organized crime families, a rising toll in dead and wounded innocent bystanders and threats against public figures have spurred an outcry in a country more accustomed to terrorism than to gangland hits.

“As Israel’s economy has grown in recent years, so have opportunities for organized crime,” said Menahem Amir, a professor of criminology at Jerusalem’s Hebrew University. “Israel itself is a relatively small country, which makes the fight over local territories and rackets very competitive.”

The gangs profit by illegal gambling, car theft, extortion, loan-sharking, prostitution, drug-trafficking and infiltration of legitimate businesses, he said. Israeli mobsters have also expanded internationally, forging links with Russian organized crime via Russian-speaking immigrants who arrived in the past two decades.

Hard-Core Members

Israel has about a half-dozen major organized crime families from both the Jewish and Arab communities, said former national police commander Assaf Hefetz, who is running for the parliament, or Knesset, on the Likud party list. Each has between 300 and 400 hard-core members.

The annual cost to the economy of organized crime is about 13 billion shekels ($3.3 billion), or 2 percent of GDP, he said in a telephone interview. That includes extortion and fraud rackets aimed at legitimate businesses, property and car theft and organized-crime control of a large “gray market” funded by loan sharking and money laundering.

“The police need more tools to contend with this threat,” said Hefetz. He cited manpower increases, tougher sentences for multiple offenders and especially seizing the property and money of suspected crime family leaders.

Two men with criminal records were arrested and charged with Margarita Lautin’s murder, which police officials told Haaretz newspaper stemmed from a gang war involving the Abergil organized crime family. The alleged leaders, brothers Yitzhak and Meir Abergil, are in police custody pending an extradition request by the U.S. to face charges including racketeering, extortion and drug trafficking.

International Bust

In November alone, there were two high-profile mob-related incidents. On Nov. 26, police revealed they had busted an Israeli-run drug ring based in Haifa that operated throughout Europe and South America. Police seized 1.5 tons of cocaine worth $500 million in raids across three continents, in coordination with international law enforcement.

And on Nov. 17, Ya’acov Alperon, described by a police official as one of Israel’s top organized crime bosses, was blown up in broad daylight on a busy Tel Aviv street. Two bystanders were lightly hurt. Eight others have been killed and several more wounded in gangland hits over the past three years.

The Israeli media has occasionally given local mobsters celebrity treatment. Before his death, the fedora-wearing “Don Alperon” took part in a television reality program in which a top fashion model temporarily moved in with his family -- his immediate one, not the “Alperon family” described by a police official as a top crime group. The official declined to be identified because investigations are ongoing.

Crime Hearing

The Knesset held a special hearing November 24 on the threat of organized crime. “The public has no confidence that the police are coping with the phenomenon of organized crime violence,” said Labor member Ophir Pines-Paz at the meeting.

Dror Mantzur, Deputy Chief of the National Police’s Intelligence and Investigation’s Division, defended the force’s efforts. In his testimony, he pointed to the establishment earlier this year of Lahav 433, a national police unit that combined five previously separate specialized squads under a unified command focusing on organized crime, and to the startup last month of Israel’s first witness-protection program.

“We now have sitting in our jails some 500 prisoners connected with organized crime,” said Mantzur, declining to give additional figures.

The last few years have seen a growing number of threats and violent incidents directed at local public officials that police say are related to organized crime. Among the targets: the mayors of Tel Aviv, Netanya, Hod Hasharon and Yavne, as well as the car-bombing assassination last June of Yoram Haham, a Tel Aviv lawyer who represented many underworld figures.

Like Terrorism

Such acts have led to calls for the government to utilize some of the same methods and resources it deploys against terrorism in its battle on organized crime.

Alexander Lautin, testifying at the Knesset hearing, suggested mobilizing Israel’s feared internal security agency, the Shin Bet, which has always dealt exclusively with terrorist threats. Both Mantzur and Pine-Paz said the answer was not diverting resources from Israel’s already over-stretched internal security forces, but reinforcing police efforts.

“It’s only a matter of time before the next act of violence between these gangsters, and innocent bystanders could again be the victims,” said Pines-Paz.

“They will be,” added Lautin.

To contact the reporter on this story: Calev Ben-David in Jerusalem at cbendavid@bloomberg.net.

Last Updated: December 3, 2008 17:01 EST