The article was written in 2004 and analyses the effect of terror on the Israeli economy in the years preceding it and especially during the second intifada. The research allows understanding the changes in the trend and business cycle of the Israeli economy. The estimates show that terror has a large impact on the aggregate economy. Terror, that changed the death toll by about the same size as due to car accidents, is expected to decrease annual consumption per by about 5 percent by 2004. Had Israel not suffered from terror over the three years prior to the publication of the article, the authors estimated that the output per capita would have been 10 percent higher than it was in 2004.