The Histadrut labour federation, the umbrella organisation for hundreds of thousands of public sector workers, said the strike - estimated at causing economic damage of around $500 million a day - also included trains, the Bank of Israel and government offices.

Israel's Ben Gurion International Airport near Tel Aviv will be shut only between 6 a.m. and noon due to a court order, but the strike for all other services will be open-ended, the Histadrut said.

The airport opened two hours early at 4 a.m. and flag carrier El Al (ELAL.TA) said it pushed up take-offs of 15 flights to Europe to before 6 a.m.

"This strike is not only unnecessary, but it endangers the Israeli market, the Israeli economy and the citizens of Israel," Finance Minister Yuval Steinitz said on Israel Radio.

The local federation of chambers of commerce had sought an injunction against the strike but Israel's high court on Tuesday rejected the request.

Histadrut wants the government to hire some 250,000 contract workers, such as cleaners and security guards, whose working conditions are inferior to workers directly on government payrolls.

The Finance Ministry said it cannot take on so many new workers but has offered to improve their conditions by raising salaries by at least 20 percent while giving more holiday time.

Histadrut Chairman Ofer Eini and Steinitz have been holding marathon talks, but so far have been unable to bridge the gaps.

"The only weapon workers have is the weapon of a strike," Eini said.

Last November, Histadrut held a strike for the same reason but Israel's labour court limited the action to just four hours and ordered the two sides to work out a deal.

Negotiations failed to produce an agreement and the court, until now, had rejected a number of strike requests.

Both sides must reappear in court at 1200 GMT on Wednesday to report on the status of negotiations.

(Reporting by Steven Scheer and Ari Rabinovitch; Editing by Michael Roddy)

• A Permanent Economic Emergency