As the U.S. dollar continues its spectacular nosedive, Israelis have rediscovered the bright greens, reds and purples of their own currency.

No longer the subject of derision or victim of hyperinflation, the shekel is now among the strongest currencies in the world. For the first time in years, businesses that once dealt only in dollars now are setting their rates to the shekel.

Overall, the transition to a shekel economy is good news for Israel, says Joseph Zeira, a professor of economics at Jerusalem’s Hebrew University.

“It means that we are less dollarized,” he said. “It shows the public has a lot of confidence in our currency.”

But the ever-plunging U.S. dollar is a mixed bag for Israelis.

While the strong shekel has meant more buying power for Israeli consumers, Israel’s export industry stands to lose greatly and even the Israeli military is grappling with the reduced value of the U.S. aid dollars it receives.

Over the past two years, the dollar has dropped against the shekel by about 25 percent — 13 percent in the past six months. The shekel currently stands at 3.60 against the dollar.

An email making the rounds in Israel shows a picture of the U.S. dollar with the subject line: “The new 3 shekel note.”

In Israel’s export industry, businessmen say the industry stands to lose $2 billion to $3 billion because of the plummeting dollar. Israel has a very small domestic market and exports make up nearly half of the country’s gross domestic product.

On the other hand, imported goods into Israel are now cheaper, and for the consumer that means savings, including cheaper big-ticket electronic items like TV sets and washing machines.

In an apparent effort to soften the effects of the falling dollar, the Bank of Israel increased interest rates by a half-percent last week.

Americans who retired to Israel and are living off their dollar savings and pensions are surprised to find themselves in unexpected financial circumstances. Some say they are curtailing their travel plans and avoiding restaurants.

Simmy Friedman and his wife, Dorothy, recent retirees from Florida, made aliyah in September 2006. They say they have not changed their spending habits but do feel the impact of the new situation.

“When we came the shekel was 4.34 [to the dollar], and that is what we predicated our living expenses on,” Friedman said. “We are extremely happy here and would not have changed our minds” about coming, “but it definitely impinges on our budget.”

High-tech companies that raise money and set their budgets in dollars also are feeling the crunch.

“Most of them are dollar-based companies — everything they do is abroad except for their research and development, which is done by a workforce here paid in shekels,” said Aaron Katsman, managing director of Israelnewsletter.com, which focuses on Israeli companies that trade in the United States. “Their labor costs have risen dramatically as they convert their funds to shekels.”

New start-up companies in particular are hurting because suddenly their projected costs are askew, Katsman said, making it difficult to plan for the future and raise money.

High-ranking army officers have expressed concerns that the defense budget, and therefore Israel’s preparedness for war, might be harmed because of the dollar’s drop.

One senior officer told the Jerusalem Post the army could lose $500 million from its current budget because of the reduced value of the dollar combined with a rise of fuel prices. He said the army has delayed converting U.S. aid money into shekels because of the low rate of exchange.

Shlomo Namdar-Kaufman, who owns and runs an industrial design firm in Tel Aviv, started charging clients in shekels for the first time about two months ago.

“People are going over to shekels because they see it’s more stable,” he said. “People are saying, ‘I pay salaries, taxes and materials in shekels. It’s time to stop speculating on the dollar.'”

Zeira, the economist, agreed with that sentiment.

“My only advice is to move to the shekel,” he said. “It’s a better currency and it’s ours.”