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The British Mandate 

With Arab help, the British took Palestine from the Ottomans at the end of World War I in 1917-18. The Arabs willingly helped the British because they had been promised independence after the war.

Unfortunately, Britain had also made promises to the Jews -- and the two sets of promises were scarcely compatible. In the Sykes-Picot agreement made with France and Russia in 1916, Britain had promised to divide the regions and rule it with its allies. In 1917 in the notorious Balfour Declaration , Britain promised, in exchange for Jewish help, a Jewish "national home" in Palestine.

The Balfour Declaration of 2 November 1917 was originally a letter sent from the British Foreign Secretary, Arthur James Balfour, to Edmond J. Rothschild, a prominent British Jew and supporter of Zionism. The letter stated the British government's support for "the establishment in Palestine of a national home for the Jewish people."

It made a further commitment on the part of the British government to make "the best endeavours to facilitate the achievement of this object, it being clearly understood that nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine, or the rights and political status enjoyed by Jews in any other country."

With the Balfour Declaration, Britain's aim was to win the support of Jews for the Allied cause in World War I -- both those Jews in nations at war and those in neutral nations such as the United States. On 24 July 1922 the declaration was incorporated into the League of Nations mandate for Palestine which enumerated the terms under which Britain was given responsibility for temporary administration of the country on behalf of the Jews and Arabs living there.

The mandate lasted from 1922-1948, during which time the British found themselves, because of their contradictory promises, in a most difficult and untenable situation -- but one primarily of their own making. On one hand, the Zionists anticipated large numbers of Jews immigrating to Palestine and even begin to speak of the establishment of a Jewish state. On the other hand, the Palestinians feared dispossession at the hands of the Zionists and naturally rejected British promises to deliver their country into the hands of what were, by virtually any definition, outsiders.

Anti-Zionist attacks took place in both Jerusalem and Jaffa in 1920 and 1921, and a British policy statement in 1922 denied Zionist claims to all of Palestine, limited Jewish immigration but nonetheless supported the idea of a Jewish national home. The British proposed setting up a legislative council as had been done in many of their other territories, but the Palestinians, upon learning of how this was to be done, rejected the idea as discriminatory.

Despite British policy and its back-and-forth nature, first supporting one side and then the other, Jewish immigration did in fact increase. Indeed, after the Nazi victory in Germany in 1933, immigration rose sharply and in 1935 over 60,000 Jews came into Palestine. An Arab revolt based on fears of Jewish domination broke out in 1936 and lasted intermittently until 1939. By that date, Britain had once again limited Jewish immigration and purchases of land and by 1940, the struggle for Palestine had abated for the duration of World War II.

After the war, the struggle resumed and though Britain refused to admit 100,000 Jewish survivors of Nazi death- camps, large numbers gained entry to Palestine by illegal means. In 1947 Britain declared the mandate unworkable and passed the problem over to the United Nations.

U.N. Partition Plan - 1947

On November 29, 1947, the General Assembly of the United Nations voted with a 2/3 majority to partition western Palestine into a Jewish and an Arab state. The Jews were to be granted what appears on the map in blue.Over 75% of the land allocated to the Jews was desert. Desperate to find a haven for the remnants of European Jewry after the Holocaust, the Jewish population accepted the plan which accorded them a diminished state. The Arabs, intent on preventing any Jewish entity in Palestine, rejected it.

The Arab Invasion - 1948

The Arabs not only rejected partition, but attacked Israel from all sides. On the day that Israel declared its independence, the Arab League Secretary, General Azzam Pasha declared "jihad", a holy war. He said, "This will be a war of extermination and a momentous massacre which will be spoken of like the Mongolian massacres and the Crusades" The Mufti of Jerusalem, Haj Amin Al Husseini stated, "I declare a holy war, my Moslem brothers! Murder the Jews! Murder them all!" The armies of Lebanon, Syria, Jordan, Egypt and Iraq invaded the tiny new country with the declared intent of destroying it..

The Armistice Agreement - 1949
(Map)

During the war For Israel's independence, many Jewish villages were destroyed, synagogues and cemeteries desecrated, and fields and buildings burned. The Jewish quarter of the Old City of Jerusalem was beseiged, and kept without food or water, and eventually the Jordanians expelled the Jews from the Old City.(1)

The grey area on the inset marks the Old City. The Jordanians took over East Jerusalem and a large portion of land on the west bank of the Jordan River, thereby narrowing Israel, seen here in blue, to approxirmately nine miles at its narrowest point. Egyptian troops overran the Gaza strip in the west as well as the southern outskirts of Jerusalem. Despite tremendous losses, the new Jewish state survived.

In 1949 Israel signed armistice agreements with Egypt, Syria, Lebanon and Transjordan,(2) which in April 1949 changed its name to Jordan.(3) One of the major consequences of this was Jordan's annexation of Judea and Samaria. This annexation was not recognized by the international community, with the exception of Britain and Pakistan.(4) This territory became a launching ground for constant terrorist attacks against Israel's civilian population. (5)

And Now...

The State of Israel has been born. Among many other necessities it required it's own Central Bank, currency, and everything else associated with it. Hopefully this website shows in part how Israel filled the requirement.

Source:
http://www.arab.net/palestine/history/pe_britishmandate.html
http://www.jajz-ed.org.il/100/maps/part.html