This paper examines the emergence of privatization in Israel's educational system. The first part provides an overview of the provision of educational services in a welfare state. The second part describes educational privatization in a welfare state, and the third part presents examples of two forms of privatization that have emerged in the Israeli educational system--the Culture, Youth, and Sports Community Centers and the "Grey Education" movement. The final part argues that privatization may disguise the central government's increased involvement in the management of some educational services that are demanded by powerful pressure groups. Privatization of educational services in a welfare state such as Israel expands the role of central government in educational affairs. The growing use of privatized educational services by affluent parents now provides the central government with an excuse to generate additional taxation and increase its intervention in educational management. Quasi-privatization, which does not replace the public sector with the private sector, leads to creation of a new sector--the mixed-economy sector in which private and public agencies collaborate and compete. Israel is currently experiencing the emergence of this third sector. Two tables are included. (LMI)