Orange trees blossomed on Israel's coastal plain recently, as they have for 40 years, exploding bright colors and sweet fragrance in stark contrast to the bitter blasts of tear gas in the occupied West Bank.

As they have for centuries, hundreds of pilgrims traveled to Jerusalem for Easter and Passover. People worked on in the factories, farms and universities to produce chocolates and wine, computer chips and chemicals.This is the land of Israel, a state born on the brink of destruction 40 years and five wars ago to emerge a modern, mighty nation.

But Israel's 40th anniversary is bittersweet. Four months of uprising in the occupied territories have left more than 135 Arabs and two Israelis dead, a grim reminder that for all its achievements one thing still eludes the Jewish state peace.

"It's a bad time to celebrate 40 years," said Yitzhak Regev, 35, who works in the orchards of Kibbutz Elon along the Lebanese border. "It's a very hard time for the country, for the people. It's not an easy time for democracy in Israel."

Israelis like Regev dragged the Holy Land into the 20th century, building roads and dredging swamps on the visions of early Zionists, who won a sanctuary for world Jewry after 6 million Jews were exterminated in Hitler's Holocaust.

"Now there is like an earthquake in the West Bank," said Regev, who was born on the collective settlement, the son of a Hungarian Jew. "It is very good because it has broken the illusions of a solid status quo. The question is whether we can deal with the facts."

After World War II, the United Nations partitioned British-ruled Palestine into an Arab state and a Jewish state.

The modern state of Israel was born on May 14, 1948, the year 5708th on the Hebrew calendar on the 5th day of the month of Iyar. This year the date falls on April 21.

On that day 40 years ago, David Ben-Gurion, who would become the first prime minister, broadcast the declaration of independence from the Tel Aviv Museum, announcing the Jewish state and its 665,000 citizens would be the sovereign nation of Israel.

Ben-Gurion's proclamation called for "complete equality of social and political rights to all its inhabitants irrespective of religion, race or sex."

In response to the declaration, five Arab nations promptly declared war on the new nation and put Jerusalem under seige in the first of a series of Arab-Israeli conflicts.

"We hoped that we would be a model state, that this state will represent the best ideas of Judaism," said Moshe Kol, 76, one of 37 signers of the declaration. "That means humanistic ideas, the Bible's ideas. I believed that we would be better than the others.

"I think that we have achieved a lot, that we have many achievements. What Israel represents today is something unique. If only we could have peace, we could make miracles."

In the last four decades, Israel has absorbed 1.78 million Jews from around the world, breathed new life into an archaic biblical language and made parts of the desert bloom. It has developed into a technological giant of the Middle East, exporting Uzi sub-machine guns and drip irrigation systems to the West. By some accounts, it has developed nuclear weapons.

Tel Aviv today is as slick as any metropolis in the world. A city of fads and fashions, it has a philharmonic and modern art, pimps and prostitutes in a red light district along the Mediterranean, a struggling film industry and discos.

Recently, the nation's first sushi bar opened.

Despite its strides, Israel still has some of the characteristics of a small town. It holds 3.74 million Jews and 750,000 Moslems and Christians, a population comparable to the state of Maryland.

But the Jewish state is also a fiercely divided land. Jewish fundamentalist zealots and left-wing secular Jews have brawled in the streets of Jerusalem over whether cinemas should open on the Sabbath. Judaism's three major branches cannot even agree on "who is a Jew."

"I don't think we have freedom of religion," said Kol. "The Orthodox here have a monopoly. Despite that we promised equal rights, Conservative and Reform rabbis have no rights here."

Politically, it is a state adrift. There is little unity in the "national unity" government of the right and left, formed four years ago in the election stalemate which followed the right-wing Likud Party's first reign of power from 1977 to 1984. Likud leader Menachem Begin won the '77 election on the vote of the Sephardi underclass, typically poorer Jews from Moslem countries. Beaten was the Labor Party, representing elitist, European-born Ashkenazi Jews who see themselves as the rightful heirs to Zionism.

The "unity" government is deadlocked on how Israel should search for peace, and many Israelis seem resigned to live on the edge of war. They say it is a fact of life in the ever-changing Middle East.

"This is a great country. You have everything here," said Doron Madar, 34, a trucking firm manager whose parents came from Yemen in the 1930s. "There's just the security situation, and about that there's nothing to be done. For Israelis, there is no trusting the Arabs.

"It's not because I'm a racist or something. In the riots of 1929, when Jews and Arabs lived together, say in Hebron, side by side they lived, as neighbors. The minute the uprising started, the Arabs went in and slaughtered their Jewish neighbors. That's why we say there's no trusting the Arabs."

Through Western eyes there have been two Israels. The nation of pioneers dredging swamps and teetering on the verge of annihilation emerged from the 1967 war a powerful state triple its original size.

For years the Israeli military seemed invincible. Commandos flew into the Entebbe, Uganda, airport in the dead of night and freed 110 airline passengers held hostage by Palestinian terrorists on July 4, 1976, America's 200th birthday. Israeli jets plunged deep into Arab airspace in June 1981 to bomb an Iraqi nuclear reactor.

But the Six Day War that established the Israeli military as the best in the Middle East also left it ruling the West Bank and Gaza Strip. Today nearly 1.5 million Palestinians live there, many in squalid U.N.-administered refugee camps breeding hatred and terror.

"Demographics" became Israel's catch word in the 1980s. People spoke of a "ticking time bomb" in the Palestinian maternity wards of the West Bank and Gaza. It has been predicted that in 30 years Jews will become a minority in their own land.

Knesset member Abba Eban, the former foreign minister and U.N. ambassador, said the Arab population of the occupied territories "constitute a structural paradox" for the Jewish state.

"There are three aims which cannot possibly be reconciled, and one of them has to be sacrificed," said Eban.

"If you want Israel to be a Jewish state and democratic state and also rule the entire territory between the river Jordan and the sea, then those three things together cannot be done. There are laws of politics, and there are laws of nature.

"We cannot maintain a coercive jurisdiction over people whose flag is not our flag, whose tongue is not our tongue, whose faith is not our faith who neither give nor owe any allegiance to the experiences of Jewish history. It is neither possible nor feasible nor just to maintain that jurisdiction."

While Eban is renowned abroad as a thinker and diplomat, at home he is viewed as out of step with the pragmatic realties of day-to-day life in a nation technically at war on three of its borders. Many Israelis say they cannot seriously consider the plight of the Palestinians: it is a luxury they cannot afford.

"You know that Golda Meir said something once, that we have a secret card, against the Arabs, something that the Arabs can never have," Madar said. "We have nowhere else to go, just to be thrown into the sea. There is no alternative. We must continue to fight."