One of the primary ideological and practical goals of early Zionism was the creation of a “productive” Jewish labor force. The realization of this goal had far-reaching implications not only for dispossessed Palestinians but also for Mizrahim (Jews originating from the Arab and Muslim world), whom the the Zionist leadership sought to “productivize” in a manner sharply divergent from that applied to Ashkenazi (European-origin) Jews. Whereas Ashkenazim were seen as entering the settler working class of their own volition, as a result of ideological conviction, Mizrahi settlers, beginning with the Yemenite immigration of the early twentieth century, were considered “natural workers” available for exploitation, whose consciousness was a matter of indifference. In the idiom of the (non-Marxist) socialism that dominated the Zionist movement from the 1920s to the 1970s, the process of “righting the upside-down pyramid” of diasporic Jewish class structure, supposedly dominated by “parasitic” occupations, culminated in the creation of two racialized tiers of Jewish workers, “natural” and “ideological.” The distinction between Ashkenazi “pioneers” and Mizrahi “working hands,” ubiquitous in the Yishuv and later in Israel, was rooted in imperialist ideologies of racial difference that conceived of Europeans as motivated by rationality and idealism in their methodical “conquest” of the natural environment, and of “Orientals” as an inert part of the landscape rather than a force engaged in molding it. Most crucially, within this imaginary, the continuing exploitation of a Palestinian proletariat by Zionist and Israeli enterprises was sometimes naturalized, similarly to that of the Mizrahim, and sometimes disavowed discursively, often through the deployment of Mizrahi intermediaries. While agrarian occupations, where these conceptions originally crystallized, have become marginal following Israel’s industrialization, the racialization of Ashkenazim as ideologically motivated and of Mizrahim as naturally fit for menial work survives in modulated forms today, still constituting a pillar of the ideological hegemony that justifies racial hierarchies in Palestine/Israel. Our paper, based on analysis of textual sources from early Zionism to the present, demonstrates that labor relations and the “ethnic splitting” of the labor market in Palestine/Israel play an active role in creating and reproducing racial ideologies, which react on the social division of labor and profoundly impact both individual life chances and the possibility of mobilizing coalitions for decolonization and social change.