Israel's trade union umbrella group Histadrut announced a general strike that would go into effect early on Wednesday morning, after late-night talks between the powerful association and the finance ministry broke down.
Starting at 6:00 am (0400 GMT), the strike shut down much of Israel's government, along with banks, hospitals and offices.
The country's electricity company was participating, along with the Tel Aviv Stock Exchange and major ports and rail lines.
Ben Gurion international airport was expected to participate in the strike for six hours, with traffic grinding to a virtual halt between 0400 GMT and 1000 GMT.
Passengers were being advised to arrive four hours before their flights and were warned to expect delays.
Some schools were also hit by the strike, though bus service in most cities was not expected to be affected.
Histadrut accused the government of failing to agree to improvements to the rights of contract workers that the private sector has said it will adopt.
Histadrut chief Ofer Eini said the association had reached an agreement in principle with the private sector on "the total alignment of conditions for full employees and contract workers."
"If a similar measure is adopted by the public sector, with the agreement of the prime minister, the strike will be halted immediately," the statement said.
The issue of contract workers has been simmering for months, with Histadrut staging a four-hour general strike over the same disagreement in November.
The association claims employment of contract workers, who can be fired without notice and receive few benefits, has mushroomed, particularly in the public sector.
They want to see contract workers receive the same benefits as others, and have called on the government to hire some of the contract workers as full employees.
The government says it is willing to make some concessions on the status of contract workers but that it would be economically disastrous to offer them all the same rights as full employees.
In a statement on Tuesday night, Prime Minister Benjamin Netanyahu warned that a strike would be counterproductive.
"A strike will not solve the problem of contract workers," he warned, adding that there was "no magic solution to the employment problems that have been created here over decades."
"The Israeli economy is in a delicate situation and now is not the time to risk the stability that we have achieved."
The media reported that the government had offered some concessions during last night's talks, including some salary increases for contract workers.
Eini and Finance Minister Yuval Steinitz were due to continue talks on Wednesday afternoon.