(MONEY Magazine) – For me, the turning point came on March 21, 1997. At 1:45 p.m. that Friday, a 28-year-old Palestinian walked into a packed Tel Aviv restaurant called Cafe Apropo. He tried to get a seat inside but couldn't find an empty table, so the waitress showed him to a place on the terrace. Moments after he sat down he detonated a bomb in his bag. Three women at nearby tables were killed, and 48 people wounded.

I had been in Israel for six years as a correspondent for the Wall Street Journal, and terror had become a fact of life. I no longer gave a second thought to the armed guards that checked my purse every time I ran into the supermarket to buy milk. I'd grown used to the fact that every package I received in the mail came stamped with a warning not to open it if it seemed suspicious. When I saw an unattended bag in a hotel lobby, I knew to report it to a guard.

And yet, in the days following the Cafe Apropo attack, I sat riveted to the TV, horrified by one image that was replayed again and again: a distraught policewoman cradling an injured baby outside the destroyed restaurant. That image haunted me in a way that previous terror attacks had not. The baby, Shani Winter, was six months old, the same age as my own daughter. Her mother died in the explosion at the age of 31, my age at the time. Cafe Apropo was just a few blocks from the office where my Israeli husband worked as an architect. Sometimes, I'd sit on that very terrace and drink coffee, waiting for him to finish work.

Nothing was ever quite the same for me after that bombing. I stopped going to outdoor restaurants in Tel Aviv, preferring to eat at home or at restaurants outside the city. I no longer took my daughter with me to crowded places like the mall.

My financial behavior changed too. I started keeping $500 in cash at home--in dollars, not Israeli shekels, since I figured U.S. currency would get me further in times of trouble. And I wrote a will, making my daughter the primary beneficiary of my life insurance policy and pension funds.

It was my first realization of how dramatically terrorism can affect your financial behavior. When you live with fear, it changes everything: your daily spending habits, what you save, whether you invest in stocks or bonds, even the decision as to whether--or where--you buy a house.

In the wake of Sept. 11, it struck me that Americans are starting to feel the same way--eating out less, avoiding air travel, stockpiling antibiotics, buying Israeli gas masks. Boston's Logan Airport has hired as a consultant the ex-head of security at Tel Aviv's Ben Gurion Airport. Security-related stocks have surged, with investors piling into names like ICTS, an Israeli firm that does passenger profiling for airlines.

Yet there are still huge differences between life in the U.S. and in Israel. America's new sense of vulnerability stems from one catastrophic day and the threat of further attacks. Israel, a nation smaller than New Jersey, has been embroiled in war from its creation in 1948. Since September 2000 alone, about 700 Palestinians and 200 Israelis have been killed. Whatever the rights and wrongs of this struggle, life for ordinary people in Israel has become a constant battle with fear.

Three years ago, I settled with my family in Boston. But lately I've been thinking a lot about my old life in Israel and how we coped with such uncertainty. I now find myself wondering if the Israeli experience might provide a kind of road map for Americans as they too learn to live with terror.

PROPERTY PRICES: IN THE LINE OF FIRE

In 1997, my husband and I moved into a $190,000 garden apartment with four bedrooms in Modi'in, a charming suburb of Jerusalem with a view of the mountains. We were not alone in our enthusiasm. When we tried to haggle over the price of the apartment, we were told to take it or leave it. We took it.

Back then, most people still believed that peace negotiations would eventually lead to some kind of quiet. Modi'in had sold itself on that notion. Located inside Israel but close to what would probably be the border of any future Palestinian state, it benefited from the underlying assumption that the border would be relatively peaceful. Route 443, which winds through beautiful valleys and the purple Samarian hills, added to the appeal by cutting the commute to downtown Jerusalem to only 30 minutes. But as violence in Israel began to escalate in September 2000, Palestinian snipers took to shooting at Israeli cars from the hills above the highway. When I visited friends in Modi'in last April, I learned that many people no longer dared to take Route 443, instead making a detour to a more crowded highway, which adds an hour to the commute. The effect on property prices in Modi'in has been dramatic. One real estate agent just sold a four-bedroom apartment for $175,000; a year ago, it listed for $215,000. Beleaguered contractors now offer free appliances or a new kitchen if you buy in Modi'in.

Property in Israel used to seem like a sure investment, driven in part by high rates of immigration and intense demand for land near the cities where most people work. But terrorism has a way of undermining any sense of financial certainty. One Israeli bank has reacted by refusing to give mortgages to anyone buying property in the West Bank, explaining that foreclosed homes in this hotbed might prove impossible to sell.

But the effect of terrorism is also evident in areas that have been comparatively safe. Ofra Goldman, a lecturer in art, has been living in a five-bedroom apartment in the Ramat Sharett section of Jerusalem since she married 18 years ago. It's a quiet neighborhood, not too far from the colleges where she and her husband teach. But as the wave of terror rose, Goldman began to worry about the safety of her two daughters, who are 10 and 13. The girls took a bus to school every day, and Goldman feared that a suicide bomber might blow up the bus or target the bus station. She bought cellular phones for both girls, so that she could check on them immediately after any attack. But last year, the Goldmans finally decided to buy a place within walking distance of the girls' school.

They put the apartment up for sale for $280,000 in September 2000. A year earlier, when things were calmer and the economy was better, they'd have asked for $300,000. Even at the reduced price, it was a hard sell. "Someone would make an appointment to see the apartment," she says, "but then there would be a bombing or a shooting and they would cancel." The only offer was for $250,000, and the buyers backed out after another terror incident, saying they felt nervous about making a large financial commitment in such precarious times. The Goldmans pulled the apartment off the market and rented it out for $700. They moved to an apartment closer to the school, paying $825 a month in rent. Though they are losing money on their biggest financial asset, Goldman says, "I consider it a good deal. I have more peace of mind now. And we can wait for better times."

STOCKS AND BOMBS: THE BLOODSHED EFFECT

Asher Sela can't afford to wait. As an asset manager at Etgar, a money-management firm in Tel Aviv, he makes investment decisions every day on behalf of private and institutional clients. The radio at his desk is always on, since news of terror attacks can have an immediate effect on stocks.

Amid this turmoil, part of Sela's job is to figure out which events he can ignore and which might make the market plunge. In October, Palestinian gunmen assassinated Rehavam Ze'evi, Israel's tourism minister, but the market dropped only 0.9% that day. In contrast, after two Israeli reserve soldiers were lynched by Palestinians in October 2000, the market sank 8% and trading was halted for 45 minutes. For Israelis, many of whom serve 30 to 60 days of reserve duty each year, the brutality of the lynching was shocking, explains Sela. But by the time Ze'evi was killed a year later, the prospect of peace already seemed more remote, he says, so investors didn't react to this latest act of violence.

When investors analyze Israeli companies, they ask a range of questions that American money managers have never had to consider. Sela ticks some of them off: "Does a company depend on factories in the West Bank and Gaza Strip? Is the main market Israel? In a worst-case scenario, could they put 30 guys on a plane to Silicon Valley?"

Zvi Eckstein, an economics professor at Tel Aviv University, grappled with such uncertainties during a three-year stint as chairman of the investment committee of a $6 billion fund run by Bank Leumi. "Whenever there was a terror attack, I didn't look at what the market did that day," he says. "I always tried to ask, 'Is this an event that will change the economic forecast for Israel's economy for the next two years?'"

Investors who have taken an aggressive stance lately have paid the price. The Israeli market has dropped 31% from its peak in December 2000, hurt not just by political unrest but by a global plunge in tech stocks. "The Israeli stock market got two big hits this year--terrorism and the Nasdaq decline," says Eckstein. "It's hard to separate them."

Many regular investors have been running scared. A lawyer friend of mine considered buying high-flying telecom stocks last year, then changed his mind as the terror attacks continued. Instead, he invested in Teva Pharmaceuticals, an Israeli blue chip that sells generic drugs, and in Israeli government bonds. "I figure that in times of terrorism and crisis, people will always buy medicine," he says. "And I feel safer having my money with the government when so much is uncertain here." He's not alone: Israeli investors continue to shift assets away from stocks and into bonds. The average daily volume of the Tel Aviv stock exchange fell from 346 million shekels in July 2000 to 227 million shekels in June 2001. Meanwhile, activity in bonds jumped from 195 million shekels to 371 million shekels.

Several years ago, Asher Sela took up boxing, both to keep fit and as a form of self-defense. "I know that boxing isn't going to help me if there's a suicide bomber," he says. "But I figure that in certain kinds of terror attacks, it can help me." He takes a defensive approach to investing too, favoring bonds and blue chips for his clients. Even with all his experience, Sela also remains cautious with his own money. He stashes much of his salary in short-term savings accounts, which he can tap within a week. "The whole concept of investing for 20 years in the stock market like you have in America does not exist in Israel," he explains. "Israelis want to be able to get to their money quickly. The idea of your grandchildren inheriting your IBM stock doesn't exist here. Israelis will look at the next quarter, maybe the next year at the most, but no longer than that."

SAVING AND SPENDING: "LIVING IN MINUS"

In the weeks following Sept. 11, I found myself thinking again about Cafe Apropo. The restaurant was rebuilt after the bombing in 1997, but I didn't go back. Business was never the same again, and a friend told me the place has closed.

I wondered what had become of Shani, the baby I'd seen on TV, and to her father, Dr. Michael Winter. One day in October, I called him. Speaking from his office in Tel Aviv, he recalled that his wife, Anat, had planned to meet friends for lunch at Apropo that day, then to bring Shani to the downtown dental clinic where he still works. Anat and her friends chose Apropo because they thought it was safer than Tel Aviv's main thoroughfare, Dizengoff Street, which had been under attack by terrorists.

Just as he was finishing up with his patients, Winter heard the explosion of the bomb from his window. He switched on his television and saw a policewoman holding his daughter. He raced to the nearest hospital, where he was told that his wife had died in the blast. Doctors told him that Shani's life was probably spared because her mother, wanting the baby to enjoy the spring sun, had switched seats and pushed the baby carriage further away from the table.

After the funeral, Michael Winter didn't want to live in the apartment he had shared with his wife and daughter before the attack. "There was a huge empty space in my life," he says. "I wasn't sure what to do." Eventually, he found a place in the Tel Aviv neighborhood where his parents lived, and he moved in with Shani. At the age of 39, he hasn't remarried. For the sake of his daughter, who is now five and in kindergarten, Winter says, "I've tried hard not to let what happened make me behave differently."

Yet fear has become an indelible part of Winter's makeup. He still goes out to eat, but he checks the faces of the people sitting near him. He avoids crowds, since terrorists prefer to attack large groups. On Sept. 11, he and Shani were supposed to fly to Prague for a vacation. They eventually got there, but the plane was delayed for 10 hours, and they were forced to wait with a mass of other travelers at Ben Gurion Airport. Being part of this crowd "was a nightmare for me," admits Winter. He saw someone at the airport who seemed suspicious and reported it to a security guard.

Other Israelis go out too, but the fear of terrorism has subtly altered the way they shop and spend. My husband used to meet his friends at 11:30 p.m. to buy groceries, figuring that terrorists are unlikely to attack a supermarket so late in the evening. Likewise, Ofra Goldman, the Jerusalem-based art lecturer, says she drives an hour out of her way to buy clothes for her girls, instead of shopping at the mall five minutes from her apartment.

Then there are the many Israelis I know who live on credit, seeing little point in holding back when a terror attack could kill them tomorrow. My friend Galia Peled is one of them. Devoutly religious and a mother of six, she lives in Jerusalem and works as a midwife in a hospital. With so many kids, money is always tight. Most months, she's overdrawn at the bank--"living in minus," as the Israelis like to say. Still, Peled tries to indulge her children as much as possible. She uses her charge card to pay for new jeans or shoes, figuring she can worry later about the future. "Elohim gadol" (God is great), she says, throwing up her hands when it's not clear where she'll find the money to cover her bills. "It's not because I'm religious that I say that," she says. "Everyone I know uses that expression when it comes to money." Her financial behavior has been shaped by constant uncertainty. "It's impossible to plan ahead," she says. "I never know what's going to happen tomorrow, so I figure I might as well buy what I need today."

Ilan Sibony, whose Moroccan restaurant Darna was once a popular spot for tourists and business people in Jerusalem, has seen firsthand how people have changed their spending patterns in response to terrorism. After the violence worsened in September 2000, he was hit with 1,650 cancellations in a single month. Many of those were tourists too frightened to visit Israel. Many others were Israelis who had booked a table at the restaurant for a birthday or anniversary, but no longer felt like celebrating. Sibony is now struggling to keep Darna open. He doesn't want to fire anyone, so work shifts have been cut in half. He pays for some things with barter, even offering free meals in exchange for newspaper ads. He's also developing a catering business. People in Israel still want good food, he explains, but more and more, they want to eat it at home.

Clara Goldstien, an account supervisor at the Tel Aviv stock exchange, still goes out regularly for lunch, but she avoids the crowded main streets, preferring less traveled paths. "Terrorists like to go to popular restaurants," she says. "I go to unpopular ones." She and her husband have long saved for retirement, regularly deducting money for their pension plans. But lately, says Goldstien, Israel's troubles have intensified their sense of mortality. Instead of blowing money on a bigger TV or a vacation, they spend their extra cash on additional life insurance policies designed to provide for the education of their three daughters in case they're orphaned.

Even when there is money to burn, there's a widespread sense that some of the joy has gone out of spending it. I've noticed this change in my sister-in-law, Orit Solomon, who has always loved to travel. In the past few years, she and her husband Menachem have taken vacations in the Sinai desert, which was returned to Egypt in 1982 by Israel as part of their peace treaty. "We always said we'd try to go back as often as we could," Orit says. But this year, they vacationed instead in Eilat, on the southern tip of Israel. "We didn't feel safe traveling in Egypt, not right now," she adds.

Everyone's horizons have narrowed because leaving the house seems fraught with danger. In April we visited Orit and Menachem in Israel and took our kids on a picnic together in a forest near Jerusalem. Terrorists had recently attacked a number of hikers, though, so Menachem carried a gun on the picnic. Most weekends, he and Orit prefer to stay home and work in the garden.

SEPT 11: "IN MY MIND, I WAS BACK IN ISRAEL."

This past August, my friend Felice Maranz arrived in Livingston, N.J. for a vacation with her husband and two kids. Felice grew up in Livingston, but she's spent the past 13 years in Jerusalem. It's now fall, but the family still hasn't returned to Israel. "I love the quiet here," says Felice. "The trees are so large, everything looks so lush."

In Jerusalem, she tried to go on as normal after every terror attack. But what became normal started to bother her. Walking her son Daniel to preschool one morning in June, they heard a large boom. It was a car bomb. No one was killed, but every morning she listened carefully as they made their way to school, waiting for the next bomb to strike. From her living room, she could hear the sound of helicopters and tank fire as Israeli troops clashed with Palestinians in the villages that border her neighborhood. One summer afternoon, she took Daniel out for a slice of pizza in a trendy part of Jerusalem. While they were eating, an Arab man entered with a bag and sat down. At one time in her life, says Felice, she would have assumed that he was just a regular guy. Instead, she and Daniel hurried out of the restaurant. "That's when I started thinking about coming back for a while to America," she says.

The morning of Sept. 11, Felice dropped off Daniel at preschool. Back in her car, the news came on the radio that two planes had been hijacked and had crashed into the World Trade Center. For Felice, it was as if she had never left Jerusalem. She pulled off to the side of the road and sobbed. Then she drove to the supermarket and loaded up on bottled water, canned food and diapers--the same items she always bought after terrorist attacks in Israel. "No one else was there yet. I was the only one in the supermarket," she says. "In my mind, I was back in Israel. They were still living in the America that used to be."

Felice and her husband David have yet to sell their apartment in Jerusalem. They're living right now in a house in New Jersey that belongs to her father. Felice straddles two different worlds--the one she knows and thought she was escaping, and the one that is no longer the same. And she wonders to herself, "Where should I go now?"

ADDITIONAL REPORTING BY NANCY SHEKTER-PORAT